Petroleum products sales grew 39% MoM basis in May 2020

As per provisional data, overall OMC sales grew 39% mom in May 2020 (down 12% yoy); excluding furnace oil (FO), however, sales were down only 3% yoy. The progressive withdrawal of lockdown conditions by the government since 9 May (ahead of Eid) has led to strong rebound in both retail fuels and furnace oil (sharply lower prices made FO based power generation more cost efficient). Mogas (petrol) sales rose 46% mom and 5% yoy, while the decline in HSD sales moderated to 3% yoy (up 26% mom).The increase in retail fuels is also attributed to PKR15-20/liter reduction in prices of petrol and HSD. Smuggling from Iran has also not returned to the pre-pandemic levels.

In May, the cumulative market share of the four major OMCs we track (PSO, APL, SHEL and HASCOL) rose to c.66% from c.61% in April as the incumbents clawed back the lost share from small and new OMCs, amid sharp reduction in pump prices. Of these four, sales growth of PSO and HASCOL outperformed the rest of the industry. We think that PSO, being state-owned, would not have been able to hold back sales (of inventory from April) at much lower prices (unlike its private peers); hence its overall share rose 5ppt mom to 42% (albeit down 8ppt yoy because of lower FO sales). However, PSO would have likely booked worse inventory losses than peers in May, in our view.

During the period 11MFY20, overall industry sales have declined 15% yoy to 14.7mn tons (ex-FO 10% lower yoy). HSD sales fell 14% yoy to 5.8mn tons while Mogas sales fell a modest 4% yoy to 6.5mn tons. A large bulk of Mogas demand comes from motorcycles, which is sticky and had grown amid high petrol and car prices before the pandemic. In the Mogas market, PSO grew its share by 2ppt to 39%, while the other three broadly held on to their shares.

The pickup in sales in May was fairly strong; however, this was mostly due to the pent-up demand from the lockdown period in our view. Sales were similar to monthly levels before the pandemic. Notably, petroleum prices (c.PKR74-80/liter) are approaching the bottom levels seen after FY15-16 oil price crash (lowest petrol price of PKR64/liter during that period). If lockdown conditions continue to ease off, petroleum demand can continue to depict strong growth in the coming months. However, we check our optimism given the present pace of Covid-19 infections (risk of reinstatement of lockdown), recent increase in international crude oil prices (up c.30% in May), and the threat of competition from small OMCs amid low prices. (Intermarket Securities Limited.)

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