The revenue of refining companies listed at Karachi Stock Exchange (KSE) during the last fiscal year posted a growth of 8 percent because of higher demand and oil prices.
FY04 remained a prosperous year for the refining sector as the gross revenue of the listed refineries stood at Rs 100 billion ($1.73 billion) compared to Rs 93 billion ($1.5 billion) during FY03, registering an increase of 8 percent year-on-year basis.
Although the throughput of the refineries (excluding Parco) declined by 2 percent to stay at 47.4 million barrels (6.47 million tons) increase in the international oil prices led the refineries to post good revenue stream during the said period.
According a report prepared by Humaira Zaheer, head of research at Capital One Equities, the refining industry average per barrel (listed) was reported at $36 per barrel during FY04 which was $32 per barrel registered during FY03, showing an 11 percent upsurge in the per barrel price. Major beneficiaries of this increase during FY04 were National Refinery (NRL) and Attock Refinery (ARL).
Net profitability of the sector at KSE during FY04 showed phenomenal increase where the primary reason for this improvement was the growing demand for petroleum products in the country and improved refining margins of the local refiners.
Profitability of the refining sector stood at Rs 2.97 billion ($51 million) as compared to FY03 bottom line figure worth Rs 2.4 billion ($42 million), posting an appreciation of 20 percent year-on-year basis.
NRL claimed the major chunk of the refiners' pie in terms of the earning base and reported 62 percent share of the profit, which was previously 55 percent. On the contrary, the profit share of Pakistan Refinery Ltd (PRL) declined from 33 percent to 25 percent.
The key reason for the decline in the profitability of PRL was low sales during the year as the company produced ample FO, which was then not sold as per schedule due to lack of demand in the country during the first half of FY04.
In unison, cost of sales for PRL remained high that squeezed the earning base of the company during the reviewed period.
Furthermore, ARL registered a marginal increase of 1 percent in its profitability year on year basis.
Rising crude oil prices can be easily termed as a 'vicious web' in which the whole world is trapped right now.
The global crude oil prices are creating jitters mainly for the non-Opec guild on account of tight US supplies, worries over Nigeria, Yuko's scam, US-Iraq loggerheads and growing demand from China.
Humaira pointed out that as winter is round the corner, it is very much probable that the per barrel price of crude oil will hug US $58 in the near term. The per barrel price of the Opec basket is also standing around US $45 and tainted by rising prices scenario, Opec prices can also touch US $50/barrel.
Threatened by this mounting pressure, airlines the world over are raising fares to offset rising oil prices of crude that are currently standing at US $53/barrel.
Lately, the international aviation industry was suffering over the fears of terrorism, the spiky oil prices further is battering their financial performance during the current year.
"This case is not only with the aviation industry alone; all segments of life are highly affected by this rabble-rouser. We believe that only the oil industry, whether upstream or downstream, is well positioned to capture the positives arising for them due to the mounting oil prices.
In Pakistan, the impact of this ongoing phenomenon is not yet passed on to the common man and the government is still taking the dent on its books (PDL), stricken by a loss of billions of rupees.
The refineries and OMCs are currently enjoying their level of affluence on this issue and are likely to report hefty profits in the current fiscal."
She said that the international oil prices are likely to remain on the higher side due to the aforementioned reasons and that would enable the local refiners to register robust growth in their top line figures.
"Keeping the FY04 throughput of 47 million barrels as a conservative proxy and USD/PKR parity at Rs 58.80 on an average basis for FY05, an increase of 11 percent in the revenue of the refining sector is very much on the cards. Furthermore, the listed refineries are likely to report additional sales revenue due to the growing demand for furnace oil (FO) in the country and this would further increase the sales figure in value terms.
Gauging the global oil market trends and country's demand and supply situation, we remain positive on the refining sector en masse."
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