The key reason for the recovery in the margins is falling crude oil prices and stable product prices, according to JS Global Capital.
Gross Refining Margins (GRMs) are profits from purchasing crude oil, processing it and selling end products.
Local refinery margins have increased to around $3 to $4.8 per barrel in the fourth quarter (April-June) of the current fiscal year against last quarter’s average margin of only $1.7, according to JS Global Capital analyst Umer Ayaz.
The key contributors to this growth were high-speed diesel and aviation fuels which jointly contribute around 50 per cent to the country’s total production.
GRM estimates for the current month are encouraging so far as they are still in the range of $6.8 per barrel, said Ayaz.
Estimates for the month are based on the average crude price for first 16 days of the month and any significant variation in crude prices from this point could affect the average GRMs, said the analyst.
Earnings outlook positive
Average margins for National Refinery Limited (NRL) are likely to stand around $6.2 per barrel during April to June 2010 against $2.5 per barrel in the previous quarter, depicting a potential of positive earnings from the fuel business.
Positive earnings are expected from the lube business on the back of the segment’s stable profit margins, said the analyst.
Attock Refinery Limited’s (ARL) GRMs are also expected to stand in the vicinity of $5.8 per barrel compared with $2.3 per barrel of last quarter, suggesting a possibility of profits from its fuel business this quarter.
Pakistan Refinery Limited (PRL) could also post positive earnings this quarter as the company’s GRMs are hovering around $3 per barrel against negative margins in the last two quarters.
Inventory loss
The three refineries could incur inventory losses of around Rs40 to Rs90 million each during the fourth quarter of fiscal year 2010 because of falling international crude and petroleum prices in May.
Arab Light Crude price fell nine per cent in the period under review. However, despite this earnings dampener, the bottom line of the three could stay in the black, said Ayaz.
Published in The Express Tribune, June 19th, 2010.
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