The three listed refineries at the Karachi Stock Exchange (KSE) during the second quarter posted significant improvement in net income because of the increase in fuel prices and higher sales of white oil products.
The companies' sales in the second quarter rose sharply indicating a rise in local demands for oil products.
The earnings of these companies during the period amounted to Rs 1.1 billion as against Rs 372 million of the first quarter of this fiscal year.
These three listed refineries reported strong earnings growth during the second quarter of the current fiscal year on the back of a rise in petroleum prices and higher sale of white oil products though overall volumes shrunk due to 50 percent lower furnace oil consumption, said a report of Mohsin Ahsan, research analyst at Global Securities.
These refineries were forced to operate at 75 percent capacity utilisation due to surplus product.
The prolonged winter season in US, 40-year low US oil inventories, Iraq worries all contributed towards the rise in oil prices.
The crude oil prices (Arabian light) averaged $28.7 a barrel during the second quarter up 11 percent.
The increase in refined product prices was even bigger with local ex-refinery prices increasing by 6-11 percent.
The highest upward revision of 11.5 percent came in kerosene, followed by 6.5 percent in high-speed diesel and Mogas, 6.2 percent light diesel oil. However, furnace oil prices declined 4.5 percent during the said period.
The scenario slightly changed from Jan '04 with refined products' prices started falling resulting in decline in gross refining margins.
However, recent announcements by OPEC to cut oil output effective from Apri1 1 has again lifted oil prices.
Furnace oil consumption halved during Jul-Dec '03 to around 1.5 million tonnes. It accounted for about 40 percent of total oil consumption in Pakistan in FY03.
The conversion of the power sector to gas, the cement sector to coal, and improved hydel generation adversely affected furnace oil demand, and forced refineries to operate at 75 percent capacity utilisation.
By Jan '04, both the PRL and the NRL invited tender for export of surplus furnace oil, however, the tender was later scrapped as furnace oil off-take started to pick up.
Due to Import Parity Pricing mechanism and lack of availability of local crude that export of any product is not viable from Pakistan.
On the other hand, the demand for white oil products, especially Mogas and diesel grew on the back of over 60 percent growth in car sales and higher industrial and transport consumption.
The demand for kerosene continued its downslide as consumption is getting replaced by LPG and natural gas.
The government has capped refineries' cash payouts at 50 percent of paid-up capital though there is no restriction on issuance of bonus shares (stock dividend).
The refineries can only pay out a maximum of Rs 5 a share dividend while the profit in excess of that has to be transferred to a special reserve account. This reserve can be offset against future losses or utilised for expansions.
However, non-refinery income, which includes lube refinery income of the NRL, is exempt from this restriction.
Unless refineries pay out regular bonuses and maintain absolute DPS amount they should be treated as 'zero growth perpetuities' for a shareholder.
FOLLOWING IS THE EARNINGS SUMMARY OF THREE REFINERIES:
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National Pakistan Attock
1QFY04 2QFY04 1QFY04 2QFY04 1QFY04 2QFY04
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Net Sales 8,629 10,147 6,119 6,425 5,546 5,951
Gross Profit 513 860 115 503 (77) 648
Optg Profit 423 792 89 478 (111) 589
Net Profit 322 516 50 308 (109) 378
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