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Sunoco Mothballs Refinery

|Includes:Sunoco LP (SUN)

More news from a battered refining sector. Sunoco is to close a refinery for an indefinite period.

Sunoco, Inc. (NYSE:SUN) announced today it is indefinitely idling all process units at its Eagle Point refinery located in Westville, New Jersey in an effort to reduce losses in its refining business at a time when a recessionary economy, weak demand for refined products, and increased global refining capacity have created margin pressure on the entire refining industry. 

 

They were obviously operating at below capacity as they claim to be able to maintain volumes despite the shutdown.
 

Sunoco will shift current Eagle Point production to its two nearby refineries in Marcus Hook and Philadelphia, Pennsylvania, which will now operate at higher capacity utilization. The company will be able to produce essentially the same amount of refined products in two facilities that it currently produces in three while continuing to meet customer demand.  

 

This fact is important for two reasons, one, the company will actually be better off, as their revenues will be the same, whilst costs fall. Two, the impact on the sector will be zero, if output really doesn’t fall.

It is unclear when or even if, the refinery will come onstream again.
 

The company intends to idle Eagle Point until market conditions improve and will evaluate this decision and other options on an ongoing basis, including the feasibility of using the facility to produce alternative fuels in the future. 

 

Interestingly, Moody’s have reduced their outlook to negative following this announcement. I say interestingly because the news should be positive for the company, as it shows that they are able to reduce their cost base, without loosing market share. On the other hand, it is another sign of how difficult the sector is, so it should be seen as a negative for the sector.

We should also expect such news to continue.

Stocks: SUN