January 25, 2008	Friday	Muharram 15, 1429

KARACHI, Feb 24: Refineries are poised to enjoy another quarter of strong earnings and analysts forecast that it would be on account of higher volumes and rise in global Gross Refining Margins (GRMs), unlike 1Q08 when inventory gains were at the back of higher profits.

Only a few stock brokerage houses cover the refinery sector and those who do have come up with healthy numbers for the financial results of 2Q08 and 1H08, awaited during the current reporting season.

Analysts said that one of the major reasons for a gloss on the bottomline of refineries would be a huge jump in global prices of furnace oil. “A loss-making product for refineries, furnace oil, would in the least end at break-even in 2Q08,” says a sector analyst at brokerage firm InvestCap. The prices of furnace oil had risen sharply due to increased demand for meeting power shortages in India and China and an intensely cold weather.

Analyst Jawad Haleem at Atlas Capital Markets observed that ex-refinery prices of other three major fuel products — diesel (HSD), kerosene and Naptha — had increased on the back of higher international prices. He said that core earnings would also contribute to the bottomline at Attock Refinery, which depended mainly on dividends from Attock Petroleum and National Refinery.

The company has strong presence in high-margin white oil products (72 per cent of its product portfolio). National Refinery being the sole producer of lubricants in the country, shows 25 per cent contribution of the product in revenue, but over 50 per cent to profits. Other refineries also have reasons to be optimistic. KASB Securities in its report regarding the upcoming 2Q08 refinery results says: “Barring any specific issues, refining companies should unveil a strong set of earnings in 2QFY08 boosted by (I) 3-10 per cent higher Gross Refinery Margins and (II) timing gains from 17 per cent jump in crude prices”.