KARACHI – Based on provisional data, the country’s refinery production in the first six months of the Financial Year (FY) 2011 (July-December) stood at 3.79 million tonnes, down nine percent annually. Moreover, GRM, a key determinant of profitability, in the second quarter of FY 2011 remained weak in quarterly terms, reflecting a poor outlook for the sector earnings in the second quarter.
Product wise analysis reveals that the decline is mainly attributed to a seven percent fall in the production of both furnace oil and HSD. Moreover, production of jet fuel (11 percent of total refining production) also fell by 11 percent in annual terms.
Similarly, MOGAS production in the period was down by 12 percent standing at 589,000 tonnes. It is believed that this significant decline in production is mainly owing to the suspension of operations at PARCO during August and September due to damage sustained in the summer floods.
Reviewing refineries individually, PARCO’s market share fell a significant nine percent; although it managed to maintain itself as the market leader with a share of 33 percent. NRL was the key gainer as its market share rose to 23 percent from 15 percent earlier. ATRL and PRL also saw their respective market shares rise to 20 percent and 19 percent from the 17 percent they both held earlier.
On a monthly basis, total refinery production in Dec 2010 stood at 728,000 tonnes, up six percent compared to November. The growth has been driven by improved output of both furnace oil and MOGAS, up 19 percent and nine percent monthly, respectively; in response to higher demand in the in the wake of gas curtailment for the power sector and CNG stations. Among other important products, production of HSD and jet fuel dropped by one percent and eight percent, respectively.
After witnessing strong first quarter results in terms of GRMs, margins in the second quarter were constrained, especially in December, when OGRA removed the incidentals from the product pricing for local refineries. Umer Ayaz at JS said their estimates suggest that on average second quarter of FY 2011, GRMs for PRL will be negative. While, for ATRL and NRL quarter’s GRM’s are anticipated to average between US$1-1.5 per barrel.
Keeping in mind the GRM trend in the period, refineries might post weaker refining profits for the second quarter. However, for NRL and ATRL, the bottom line is expected to remain positive on the back of stable lube earnings (in the case of NRL) and strong dividend income (in case of ATRL). PRL’s bottom line is likely to remain negative.
