Refineries: Strong GRMs in April-11 despite MoM decline

Marginal reduction in April-11 GRMs: Gross Refining Margins for the local refineries declined 4% MoM to USD5.4/bbl during April-11. Deemed duty contribution increased by 6% MoM to USD3.6/bbl in April-11. We have restated Mar-11 GRM, trimming it by USD0.7/bbl, based on actual Arab Light average for Mar-11 (released by OPEC).

HSD + MS drove April-11 GRMs: Amongst the refined products, spread on MS witnessed biggest expansion of 11% MoM to USD8.6/bbl during April-11, primarily due to ongoing driving season in the west. HSD spread (with duty) increased to USD27.5/bbl, highest since July-08, owing to higher summer demand from India and reduced export from Japan, after shut down of refineries. Ongoing refinery turnaround in Asian and European countries further firmed up HSD and MS spread during April-11.

Deemed duty maintained at 7.5%: Despite 6% MoM jump in oil prices during April-11, GoP maintained duty at 7.5%. GoP also did not notify PDC on any refined product, which eliminates receivable accumulation risk for the local refineries.

Strong 4QFY11 GRMs: GRMs have averaged USD5.5/bbl during 4QFY11 to date, 30% higher than the last three quarters average of USD4/bbl. Due to one month lagged import parity pricing, Mar-11 to May-11 GRMs will determine 4QFY11 GRMs. FY11 to date, GRMs have averaged USD4.2/bbl, highest since FY08.

Marginal reduction in April-11 GRMs

Gross Refining Margins for the local refineries clocked in at USD5.4/bbl, down 4% MoM as oil price increase outpaced most of refined product prices. Monthly deemed duty contribution increased 6% MoM to USD3.6/bbl, highest since July-08. Amongst listed refineries, NRL’s GRM was down a mere 1% MoM to USD7.8/bbl, whereas ATRL and PRL posted GRMs at USD4.9/bbl (down 5% MoM) and USD1.1/bbl (down 34% MoM) respectively. We have restated Mar-11 GRMs, trimming it by USD0.7/bbl, based on actual Arab Light average for Mar-11 (released by OPEC). We last reported April-11 GRMs at USD6.3/bbl, based on estimated Arab Light price.

HSD + MS drove April-11 GRMs

Amongst the refined products, spread on MS witnessed biggest expansion of 11% MoM to USD8.6/bbl during April-11, primarily due to ongoing driving season in the west. Whereas HSD spread (with duty) increased to USD27.5/bbl, highest since July-08, owing to higher summer demand from India and reduced export from Japan, after shut down of refineries. Ongoing refinery turnaround in Asian and European countries further firmed up HSD and MS spread during April-11. Naphtha spread further weakened during April-11 to USD-4.1/bbl, owing to reduced demand from Japan, world’s largest naphtha consumer, after shut down of Naphtha crackers. HSFO spread at USD-18/bbl was the worst since July-08, a major downward drag on GRMs.

Deemed duty maintained at 7.5%

Despite 6% MoM jump in oil prices during April-11, GoP maintained deemed duty at 7.5%. Deemed duty contribution to local price have reached PKR5.6/liter. We believe, the probability of deemed duty cut/removal has reduced for the near term. GoP also did not notify PDC on any refined product for the month of April-11, which eliminates receivable accumulation risk for the local refineries.

Strong 4QFY11 GRMs

GRMs have averaged USD5.5/bbl during 4QFY11 to date, 30% higher than the last three quarters average of USD4/bbl. Due to one month lagged import parity pricing, Mar-11 to May-11 GRMs will determine 4QFY11 GRMs. FY11 to date, GRMs have averaged USD4.2/bbl, highest since FY08.

Economic & Political News

If gas for four power plants diverted to units: fertiliser sector offers to subsidise HSD

Fertiliser sector has offered to subsidise High Speed Diesel (HSD) for four power plants provided the government agrees to divert 152 mmcfd gas to it allocated for the plants. Naveed Qamar asked the stakeholders to work out price differential between HSD and gas and submit a jointly agreed mechanism for approval. The four power plants will need 4mn litres per day HSD if gas is diverted to fertiliser industry. Fertiliser plants are operating at low capacity and fertiliser industry has assured to operate plants at 80 to 85% production capacity if the gas is diverted from power plants to fertiliser units. The four power projects Saif, Orient, Sapphire and Halmore with power generation capacity of over 800 MW were allocated 152 mmcfd gas-38 mmcfd for each power plant. During the meeting it was informed that each power plant is receiving 30 mmcfd gas against allocation of 38 mmcfd.
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