GRMs of local refineries improve 32pc in Q3

KARACHI: The gross refining margins (GRMs) of the local refineries have improved 32 percent in the third quarter of the current financial year.

Considering aggregate production mix of all refineries in Pakistan, GRMs are estimated to be around $12/barrel during the quarter under review, which may vary depending on product slate of individual refineries in Pakistan, Farhman Mahmood, head of research at Sherman Securities, noted in a research report.

He pointed out that crude oil prices maintained downward trend in the said quarter following global slowdown owing to rising interest rates and emerging banking crisis. “On the flip side, prices of refined products remained downward sticky, resulting into improvement on QoQ basis, we believe,” he added.

GRM which is the key determinant for fuel refinery earnings, has improved by 32 percent QoQ in Q3FY23, he stated. However, if core earnings improve on account of rising GRMs, huge exchange losses amid average 10 percent QoQ rupee devaluation against dollar would limit the benefit of GRMs on the bottom-line.

Thus, refineries relying mainly on imported crude, like Pakistan Refinery Limited (PRL) and National Refinery Limited (NRL), would be negatively impacted due to exchange losses. On the other hand, Attock Refinery Limited, which solely relies on indigenous crude, would gain maximum benefit from the rising GRMs.

The report stated that devaluation of 10 percent QoQ could limit inventory losses as crude oil also fell by 10 percent in dollar terms.

After remaining depressed for the last two quarters, spread on MS or gasoline improved from negative $5/barrel to positive $8/barrel. Product spread is the difference between the product price and crude oil price.

Thus, during the ongoing quarter of this fiscal, average price of petrol (92 RON)

remained around $89.5/barrel, while average crude oil price remained around $81.6/barrel.

Similarly, the price of furnace oil (FO), being the residual fuel, was below crude oil. The spread on this product improved from negative $36/barrel in the second quarter of this financial year to negative $27/barrel in the third quarter of this fiscal. This was positive for PRL since FO contributes more than 24 percent of the product slate.

However, high speed diesel (HSD), the highest earnings contributor for local refineries, spread reduced from $36.5/barrel to $31/barrel in the quarter under review. Thus, overall GRMs, which are the aggregate sum of weighted average spread of all the products, improved from $9/barrel in the second quarter of this financial year to $12/barrel in the third quarter of this fiscal.

The report stated that spread and GRMs calculation may vary for individual companies since their procurement cost may vary owing to the strict import situation.