Petroleum products demand fall in Pakistan during the month of April 20

As per provisional data, overall OMC sales declined by 36% yoy (up 6% mom) to 1.06mn tons during April 2020. This was the first full month of lockdown in Pakistan (in place since 24 March). The true impact of the lockdown was seen in Mogas sales which fell 36% yoy and 19% mom, where the fuel is mostly used by retail consumers. HSD, on the other hand, rose 43% mom (down 16% yoy) due to demand from the agriculture sector (Rabi crop harvesting) and lower availability of imports from Iran (borders closed amid the Covid-19 outbreak). Furnace oil (FO) sales fell 75% yoy because power generation is concentrated among LNG, coal and hydro based power plants.

In April, the cumulative market share of the four major OMCs (PSO, APL, SHEL and HASCOL) fell to c.61% from c.67% in March and c.70% same period last year. As expected, in an environment of declining international oil prices, small OMCs will chase the market share of incumbents by offering discounts and other incentives to dealers. Another reason for the trend is that smaller OMCs tend to operate mostly on highways and outside the major cities, which were less severely affected by the lockdown, in our view.

The incumbents saw major attrition in their market share in the Mogas (petrol) market, where PSO and SHEL lost about 3-4ppt each. In the HSD market, however, PSO gained 3ppt share while APL, SHEL and HASCOL lost about 1-3ppt each. About 67% of the residual FO market was captured by OMCs other than the four discussed here (historically dominated by PSO sales to the Power sector).

During the period 10MFY20, overall industry sales have declined 15% yoy to 13.2mn tons. HSD sales fell 16% yoy to 5.1mn tons and is now overtaken by Mogas as the highest-volume fuel. This is a reflection of the broad economic slowdown during the period. Mogas sales fell 5% yoy to 5.9mn tons, where price reductions, sticky motorcycle consumption and still-ailing CNG supply helped to contain the decline, in our view.

While petroleum prices are presently close to the bottom levels of the previous oil price collapse (FY15-16) and consumer demand can pick up strongly in a post Covid-19 environment, we think the threat from smaller OMCs is a key risk for future sales of PSO and other large OMCs. Given international crude oil prices have not yet found a new normal, we expect earnings volatility in the sector to remain in the coming quarters. We prefer APL in the space for a more balanced risk-reward profile. (Intermarket Securities Limited.)

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