Profitability of refineries is expected to be affected during the first quarter (July-September) of financial year 2011 unless margins recover significantly during the remaining quarter, said Topline Securities analyst Farhan Mahmood.
Margins have been on a declining trend for the last two months. However, there will be a big variation in company-wise margins due to difference in product mix, particularly Pakistan Refinery Limited (PRL) whose product portfolio mainly comprises furnace oil which has higher negative margins, Mahmood informed.
GRMs is the product spread minus the refining cost.
Refining cost is relatively stable while the product spread varies with the change in international crude oil prices and oil product demand in various regions, explained Mahmood.
The decline in margins is primarily due to lower spread on diesel and furnace oil against last month. Both of these products have a combined share of 70 per cent in local refinery production.
Capacity utilisation also declining
Besides declining margins, refineries operated at 75 to 78 per cent capacity during July as mounting circular debt badly affected the overall refinery sector, according to Topline estimates.
Published in The Express Tribune, August 28th, 2010.
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