TASCO: The Valuable Lesson for High Dependency

Overnight, Tipco Asphalt Public Company Limited (TASCO) became the talk of the town after the company was ordered by the US State Department to wind down of crude oil procurement from Venezuela by the end of November 2020. 

Moreover, the US State Department has warned that TASCO could face a sanction if not compromised. But…it is the continually strained ties between the US and Venezuela, why TASCO is also in trouble? 

As a result of the US’s intimidation in order to avoid the sanction, TASCO decided to stop purchasing crude oil from Venezuela to comply with such a request. The Kemaman refinery in Malaysia, which is specifically designed to refine heavy crude oil from Venezuela, will shut down temporarily as 90% of the refinery’s feedstock was sourced from Venezuela.

Such a situation has once happened to Rayong Purifier Public Company Limited (RPC) (nowadays known as RPCG Public Company Limited-RPCG), a condensate residue refinery, 10 years ago as the company was highly dependent on one customer or one supplier.

PTT Public Company Limited (PTT) was a long-time supplier of a condensate residue for RPC until 10 years ago PTT decided to quit supplying it. Therefore RPC’s refinery had been forced to shut down anyway.

So, how would TASCO deal with such a problem…?

First of all, TASCO should seek alternative crude oil, but it could face a consequence such as a higher cost and a weak bargaining power. 

The sales volume from Malarsian refinery accounted for approximately 50% of total TASCO sales volume or about 2 – 2.2 million tonnes.

According to TASCO latest statement, the company stated that it is in the midst of sourcing alternative crude oil/feedstock not limited to only oil producers but any oil trading companies and will procure asphalt from regional refineries to support the international trading activities.

Analysts assessed that TASCO could see a drop in revenue by 10 – 20% this year, and could worsen next year if the refinery shut down permanently as it could cause about 50% plunge in sales volume, doubling with a 40% sink in profit of an estimation of 3.3 billion baht. 

This event also affected the parent company Tipco Foods Public Company Limited (TIPCO).

As of today (Sep 15) TASCO and TIPCO continued to move downward, TASCO almost dropped to the floor with a plummet of ฿3.00/share of 14.71% to close at ฿17.40/share with a trading value of 67 million baht, meanwhile TIPCO fell ฿0.55/share or 8.87% to close at ฿5.65/share…what a pity.

This is a valuable lesson for TASCO when it was too dependent.