Surge in int’l oil prices improves domestic GRM in Pakistan

Islamabad, April 07, 2011 (PPI): The surge in the international oil prices have improved domestic refinery operating environment by augmenting their Gross Refinery Margins (GRMs) - a vital gauge for sector’s profitability.

As per our estimates, on account of favourable price movement domestic GRMs are expected to stand at US$2.6 per barrel in Apr-11 as against negative US$0.4 per barrel in the pervious month. However, the improvement stems from surge in deemed duty in absolute terms on Gasoil/diesel.

Therefore, despite improvement in the GRMs, "We continue to have a ‘Market-Weight’ stance on the sector on account of heightened uncertainty surrounding the deemed duty. However, on account of superior product mix and group synergies we continue to show our liking towards ‘ATRL’ which is trading at FY11 P/E and P/BV of 4.3x and 0.8x, respectively (incorporating 5% deemed duty”, said Topline Research on Thursday .

Popular uprising in the MENA region along with natural calamity in the Japan has pushed up international crude oil prices (Arab Light) to average around US$113 per barrel in Mar-11, up 10% MoM. This has also translated into surge in middle distillate prices in the range of 7% (HSFO) to 12% (Gasoil). Subsequently, middle distillate crack spreads (crude price less product price) have improved on premium products in the range of 16% (Kero) to 20% (Gasoil), while spreads on inferior HSFO has dipped further dipped by 17%.

April GRMs to clock around US$2.6 per barrel: On account of aforementioned favourable price movement, we estimate domestic GRMs to stand around US$2.6 per barrel in Apr-11 versus negative GRMs of US$0.22 per barrel in Mar-11. Amongst the individual refineries, Attock refinery (ATRL) continues to lead the pack on account of its superior product mix (higher share of diesel and petrol). Thus assuming crude oil prices to remain at current levels, we estimate ATRL GRMs to show a significant improvement to stand around US$6.1 per barrel in Apr-11 as against US$4.8 per barrel in the pervious month.

Other listed refineries are expected to pull back their core-refinery margins into green. National Refinery (NRL) GRMs is expected to stand at US$0.9 per barrel as against negative US$2.6 per barrel last month. Pakistan Refinery (PRL) and Byco Petroleum (BYCO) GRMs are anticipated to stand at US$0.2 and US$1.6 per barrel. However, it is important to note that these GRMs stems from the advantage of deemed duty other wise most of the refineries would have been in losses as depicted by the graph below.