Pakistan’s refinery sector is likely to face earnings pressure after the federal government reduced the ceiling on regulated High-Speed Diesel (HSD) crack spreads, according to a report by brokerage house Al Habib Capital Markets Limited (AHCML). In its October 19 decision, the Federal Cabinet revised the HSD pricing mechanism by lowering the maximum crack spread to US$38 per barrel from US$41.89 per barrel, a 9.3 percent reduction, while keeping the floor at US$11.33 per barrel.
AHCML noted that the revised framework would prevent refiners from fully passing elevated international diesel margins through to domestic ex-refinery prices. With international HSD crack spreads currently averaging around US$52.1 per barrel, the new cap is expected to limit local refiners’ profitability, particularly those with higher diesel yields.
“For FY27, we assume an MS crack of US$18.21 per barrel, an HSD crack capped at US$38 per barrel and an FO crack of negative US$13.70 per barrel,” the research house said, adding that the earnings impact would differ across companies depending on throughput levels, product mix and HSD exposure.
The brokerage highlighted that while the unchanged floor offers some protection during periods of weaker diesel margins, the reduced ceiling curtails upside potential when international crack spreads remain elevated.
AHCML further observed that the pricing mechanism is valid for only three months and may be withdrawn earlier at the government’s discretion, creating uncertainty for long-term refinery upgrade projects and capital investment plans.
“Overall, we view the revised HSD pricing mechanism as earnings-negative for the refinery sector when international HSD cracks exceed US$38 per barrel, as the lower ceiling further restricts the pass-through of elevated diesel margins into domestic prices,” the report said.
The brokerage added that although the mechanism provides short-term margin stability, uncertainty surrounding its duration and the lower cap could weigh on earnings visibility and future investment decisions across the sector.
