Equity Analysis /
Pakistan

Pakistan OMCs – Oct'22 Sales update - Sequential increase in volumes

  • HSD and MS volumes recovered while FO sales continue to contract, overall volumes were up 9% MoM.

  • Expected recovery in FO sales faces risk from falling LNG prices due to excess supply in Europe.

  • ECC has agreed to revise OMC margins for both MS and HSD to PKR6/litre, Cabinet ratification is still awaited.

Intermarket Securities
2 November 2022

Strong recovery in HSD volumes to 712mnMT (+37% MoM) has helped in reversing the downward trend of total volumetric sales over the last few months. However, compared to last year, total volumes are down 16%, where the major driver is FO volumes, down 37% YoY. Even though Oct’22 sales are up 9% MoM, FY23 so far has been a tough year for POL product sales, with 4MFY23 demand down by 22% from last year due to infrastructure damage caused by floods, high international oil prices, and substantial taxation measures on local petroleum products leading to expensive POL products and a decline in auto sales.

  • Recovery in HSD is likely an indication that damages caused by floods, both on infrastructure and farmer income, have started to recede. Local prices, although elevated, have started to shed their upward trend and stabilize. We even witnessed a slight decline in HSD prices (4% from their peak). HSD volumes are still down 15% YoY and if gasoil crack spreads do not fall, the government may have to increase prices due to PDL commitments made to the IMF. A rise in HSD prices will likely result in volumes contracting.

  • MS volumes have also recovered 8% MoM, however, their recovery was weaker compared to HSD. MS prices now fully incorporate a PKR 50/litre PDL, which the government had committed to the IMF. If the crack spreads and the exchange rate normalize, the government can push respite towards consumers, positively affecting demand. However, according to latest news flow, the government may impose a GST on MS prices in the second half of November, and avoid increasing the PL on HSD because the latter is inflationary in nature.

  • FO volumes continue to show lackluster demand. Volumes have fallen by 33% MoM and 37% YoY. While we do expect volumes to recover slightly in the winter, this faces risk from falling LNG prices due to excess supply in Europe. Pakistan may be able to obtain few spot LNG cargoes, now that the prices have declined, thereby reducing the demand for FO in winters. 

The ECC has agreed to revise OMC margins for both MS and HSD to PKR 6.00/litre compared to the current PKR 3.68/litre and PKR 4.02/litre, respectively. Cabinet ratification is still awaited as this may be kept on hold until there is a respite in international oil prices. The government is likely to revise these margins when international prices decline in order to prevent a further hike in petroleum prices. The Prime minister and his team have also approached Saudi Arabia and China to invest in the refinery sector which may conclude in a substantial amount of foreign investment to the tune of USD10-12bn.