AKD Securities Limited Equity Research – Daily Report

Karachi, January 09, 2019 (PPI-OT): Pakistan Energy: RFO’s future; of lemons and lemonade

Recent developments surrounding the procurement (ban on imports imposed Dec’18), storage (proposed storage/hospitality arrangements with IPPs) and refining (allowance of exports with possible freight concessions) of RFO has ruffled mid-stream petroleum dynamics.

At first glance, on the basis of prevailing negative cracks between HSFO 180CST (global benchmark for FO pricing domestically) when matched by the likelihood of diminished spreads continuing (global demand for FO receding, international regulations) make for hampered profitability, even without maritime freight or handling charges.

Taking a comprehensive view of prevailing refinery production slates, refining yields for major products and FO in particular between major refiners highlighting players being better off in terms of cutting lower FO refining yields, all the while.

From a global context, we were hard-pressed to find regional markets where FO imports are expected to climb (Bangladesh and Saudi Arabia), further signifying the cratering global landscape of FO fuel demand.

In this backdrop, selective preference for downstream players with stable market shares (APL where 25% of total FO sales are to Attock Gen) and HUBC (geographical importance if export storage plans are enacted) are advised.