February 4, 2020 (MLN): Oil and Gas Marketing Companies (OMCs) have witnessed a decline of 13% YoY in volumes to 1.35 mln ton in the month of January 2020, bringing industry volumes for 7M FY20 to 10.6 mln ton, marking a deterioration of 6% YoY.
On monthly basis, the industry volumes were plunged by 2% MoM in January on the back of drop in High-Speed Diesel (HSD) and Motor Spirit (MS) sales.
Whereas the YoY weakening in fuel demand during 7MFY20 was witnessed owing to contraction in Furnace Oil (FO) and HSD sales.
MS sales in the month of January increased marginally as compared to January 2019, bringing the total sales during 7MFY20 to clock in at 4.42 mln ton, up slightly by 4% YoY. According to the report compiled by BMA Capital, the converging price parity between MoGas and CNG played a key part in compelling vehicle users to switch back to MS as their primary fuel source. On monthly basis, the volumes suffered by 5% MoM due to anticipation of the price drop in January 2020.
HSD volumes, on the other hand, depicted vulnerability to macroeconomic slowdown with sales of 3.34 mln ton during Jul- Jan FY20 against 4.25 mln ton posted during Jul-Jan FY19, the decline was mainly attributable to drop in LSM by 6% coupled with a general slowdown in economic activity contributed towards the commodity decline, the report underscored.
Similarly, the demand of FO remained relatively low as its off-take depicted a decline of 23 YoY during 7M of the current fiscal year to 1.4 mln tons while in the month of January alone, the volume went down by 40% YoY to 0.22 mln ton.
On a monthly basis, FO sales have picked pace as it posted a growth of 88% MoM resulting from a considerable decline in the commodity’s price post the implementation of the IMO2020. The report highlighted that FO-based plants inched up the merit-order list notably, particularly NCPL and HUBC’s Narowal Plant with their rankings standing at 24 and 26, respectively.
In addition to this, FO off-take in January was further amplified by exports of BYCO as the company sold 59kT of the commodity as opposed of sales of 14kT in the preceding month, the report added.
Company-wise, PSO led the charts by posting 6% YoY increase in total sales during Jul-Jan FY20, whereas, HASCOL, APL and SHEL’s overall sales plunged by 50%, 8% and 4% YoY respectively. Moreover, increased competition has largely declined market share of larger OMCs such as HASCOL, APL and SHEL while PSO has recently started to capture market share, furthermore, Sukuk-II is likely to provide ease in cash flows for PSO, a report by IGI Securities highlighted.
With regards to future outlook,the report predicts that the drop in FO prices and the start of the FO plants to move up the merit order list will keep the demand of FO in between 2 to 2.5 mln ton with another gas price hike in offing, however, with higher domestic prices, peaked out interest rates and drop in automobile sales are likely to keep OMCs volumes subdued in the short-term.
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