As per provisional OCAC numbers, petroleum volumes grew by 1%yoy to 1.4mn tons during Nov’19. After May’18, this is the first month of yoy growth as two major products with declining sales, Furnace Oil (FO) and High Speed Diesel (HSD), reversed their trend in Nov’19. Prices have also been majorly stable since Sep’19, as PKR is holding up against US$.

During Nov’19, HSD sales inched by 2%yoy to 0.62mn tons. HSD segment was declining by 15-20%yoy in the past few months due to slowdown in economic activity and influx of smuggled products. However, industrial activity appears to be picking up as economy adjusts to new documentation measures (CNIC condition, etc). Motor Spirit (MS) sales are up 2%yoy to 0.58mn tons during Nov’19, in-line with recent trend, reflecting more resilient consumer demand. FO demand was 0.14mn tons in Nov’19, up 3%yoy as it is coming from a low base. On monthly basis, however, volumes were down by 28%, as it is being replaced with other fuels for power generation.

In terms of market share, PSO is consolidating its market share at a higher level. In 5MFY20, its share is MS/HSD is up by 3.6/6.6ppt yoy to 40.5/45.1% as smaller OMCs scaled back in a declining environment. In particular, HASCOL has lost market share by almost same numbers, as it had to scale down its growth due to working capital issues. SHEL and APL are broadly stable in terms of their shares on yoy basis during 5MFY20 at 8.3% and 10.4%, respectively.

Outlook:

We expect petroleum sales to remain stable or show moderate decline as economic outlook is improving. Additionally, FO prices are under pressure globally due to IMO 2020 (regulations on sulphur content) which is reflecting in local prices as well (down 20% FYTD to PKR51k on ex refinery basis).

In another development, GoP finally increased OMC margins on MS and HSD by PKR0.17/litre to PKR2.81/litre from Dec’19 prices based on Apr’18 to May’19 CPI (we had incorporated higher margins from Jan’19 in our estimates). This has an annualized impact EPS impact of 8% and 5% on PSO and APL, respectively.(Courtesy: Intermarket Securities Limited.)