In FY20 and even in FY21, Covid-19 lockdown in the country has sparked a meltdown in a sector that was already on its knees. Refinery sector has been in shambles even before coronavirus pandemic struck; slower economic growth in the two fiscal years (FY19 and FY20), leading to lower overall petroleum consumption along with the furnace oil crisis, and the crashing oil prices in 2020 have created a challenging environment for the refineries. And with Covid-19 in 2HFY20, the sector’s profitability was hit hard due to huge inventory losses. Not to forget the debilitating state of the refineries that have been unable to upgrade all these years.

Attock Group’s National Refinery Limited’s (PSX: NRL) - part of the only four listed refineries - profitability also nosedived into losses in these two fiscals; though the losses for NRL in FY20 halved year-on-year, NRL was forced to halt operations and close the refinery temporarily during the year during the year. NRL yesterday posted a further decline in losses from Rs2.9 billion to Rs823 million year-on-year. However, the decline mainly stemmed from 2QFY21 where the company’s earnings turned positive after a long time. On the other hand, losses doubled year-on-year in 1QFY21, which was due to inventory losses from both the fuel and the lube segment.

Weak margins on petrol and diesel continue in the second quarter as well but what might have helped NRL in 2QFY21 could be a turnaround in the lube segment. Lube segment incurred loss in 1QFY21 due to increase in feed cost and decline in prices of products. Also, slow demand for bitumen due to lower spending on infrastructure projects resulted in the blocking of funds in inventory forcing the company to finance the operations through short term finance. The situation might have eased in 2QFY21 as the lockdown restrictions were removed and infrastructure activities resumed. Also, lower inventory losses are likely the reason for improved performance in 2QFY21.