Petroleum volumes declined by 5%yoy to 1.37mn tons during Dec’19

As per provisional OCAC numbers, petroleum volumes declined by 5%yoy to 1.37mn tons during Dec’19. However excluding Furnace Oil (FO), volumes were up 3%yoy in Dec’19 due to growth in Motor Spirit (MS). During CY19, volumes clocked in at 18.58mn tons, down 24%yoy as FO phase-out continued while HSD volumes remained under pressure due to influx of grey product and manufacturing slowdown.

During Dec’19, HSD volumes declined by a moderate 2%yoy to 0.55mn tons compared to 14%yoy decline throughout CY19. HSD volumes declined for two consecutive years due to lower FO based power generation (where HSD is used to start operations), slower agricultural growth and decline in manufacturing activity. Industry sources also highlight influx of smuggled HSD which impacted volumes as higher petroleum levy (PKR17.4/litre in CY19 vs PKR7.9/litre in CY18) increased price differential. MS sales were up 7%yoy to 0.64mn tons in Dec’19. In CY19, only MS sales improved (up 2%yoy) reflecting baseline consumer demand. FO volumes plunged to a historical monthly low of 0.11mn tons in Dec’19, down 49%yoy as power demand drops in winter months while share of LNG/coal based power generation is increasing progressively. FO volumes were down by 49%yoy in CY19 to 2.74mn tons but demand may stabilize due to depressed prices (down c.20%yoy).

During CY19, PSO improved its market share in retail fuels by 3.4ppts as HASCOL faced Fx losses and working capital issues, taking a hit on its growth ambitions. Market shares of SHEL and APL remained largely stable in CY19. We have a Marketweight stance on the OMC sector where we think volumes may stay under pressure in the near term while positives like margin increase and IMF’s nod for Energy Sukuk II are priced in (OMC sector was up 19% in 2HCY19). APL is our top pick in the OMC space (Jun’20 TP of PKR440/sh) as it is increasing its storages and sites, which should translate into higher market share while it continues to offer better dividend yield than peers. (Courtesy: Intermarket Securities Limited)

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