The country's refinery production has declined by 9 percent on year-on-year basis to stand at 3.79 million tons in the last six months (July-December) of 2010. Moreover, GRM's in the second quarter of FY11 remained weak on quarter-on-quarter basis suggesting a dull outlook for the sector earnings in the second quarter, analysts said.
"Taking into consideration the volatile nature of GRMs, high regulatory risk and the prevailing circular debt situation, we remain 'Market weight' on the refinery sector."
Based on provisional statistics, total refined oil production in the last six months of 2010 stood at 3.97 million tons compared to 4.16 million tons in the corresponding period last year.
Product-wise analysis shows that the decline is mainly attributed to 7 percent decrease in both furnace oil and HSD production. Moreover, production of jet fuel (11 percent of total refining production) also fell by 11 percent on year-on-year basis. Similarly, Mogas production in the period was down by 12 percent on year-on-year basis standing at 589000 tons. "We believe this significant decline in production is mainly owing to operation closure at Parco during August and September due to the floods", Umer Ayaz, an analyst at JS Global Capital said.
"Parco although lost its market share by a major 9 percent, it managed to maintain its market leader position with a share of 33 percent", he said. NRL was the key gainer as its market share rose to 23 percent from 15 percent earlier. ATRL and PRL also witnessed their respective market shares improve to 20 percent and 19 percent from 17 percent earlier for each.
On month-on-month basis, total refinery production in December 2010 stood at 728000 tons, up 6 percent versus November. The growth was driven by higher production of furnace oil and Mogas, up 19 percent and 9 percent on month-on-month basis, respectively, in response to higher demand in the in the wake of gas curtailment for the power sector and CNG stations, he said.
Among other notable products, production of HSD and jet fuel dropped by one percent and eight percent, respectively, he added. After witnessing strong first quarter in terms of GRMs, margins in the second quarter remained under pressure, especially in December when Ogra removed the incidentals from the product pricing for local refineries. "Our estimates suggest that average in the second quarter of FY11 GRMs for PRL would settle around negative $0.3 per barrel whereas, for ATRL and NRL we anticipate quarter's GRM's to average between $1-1.5 per barrel", he said.
"Keeping in view the GRM trend in the second quarter of FY11, we foresee refineries to post weaker refining profits for the second quarter. However, for NRL and ATRL, we expect the bottom line to remain positive on the back of stable lube earnings (for NRL) and strong dividend income (in case of ATRL)", he said. The PRL's bottom line is likely to remain in red, he added.