Karachi, May 10, 2022 (PPI-OT): Rabi harvest and power demand augur new sales peak in Apr-2022
OMC sales in April 2022 grew 21% MoM to c.2.2mnMT (up 32% YoY), highest since May-2018. The sequential rise in sales was led by an impressive 33%MoM increase in HSD sales, which is albeit seasonal in nature. Moreover, FO demand grew substantially during the month owing to rise in power generation in the absence of adequate RLNG supplies.
Year back, HSD prices were nearing Rs 110/litre, including Rs15/litre under petroleum levy. This time, HSD price is nearly 50% higher despite the subsidy and this will likely bode negatively for second round impact on food inflation, more specifically when HSD prices are normalized to Rs220/litre upon removal of subsidy.
We expect overall PDC outlay to near Rs158bn if it lasts till mid of May-2022 (0.25% of GDP). We believe, with rising need of fiscal stability, Relief Package must be discontinued. We estimate removal of retail fuel subsidy will add 1ppt MoM to headline inflation.
POL sales make a fresh peak of 2.2mnMT in Apr-2022
As per provisional data, overall OMC sales in April 2022 grew 21% MoM to 2.2mnMT (up 32% YoY). The sequential rise in sales was led by an impressive 33%MoM increase in HSD sales, which is albeit seasonal in nature. Moreover, FO demand grew substantially during the month owing to rise in power generation in the absence of adequate RLNG supplies.
Seasonal growth in April; secondary impact on inflation
Demand for HSD rises sequentially every year in the month of April as Ravi harvest season kicks off, lasting the end of May. HSD demand from Agriculture constituted nearly one-third sales, are expected to last until May. The month of Apr-2022 also witnessed a pre-emptive buying strategy from Agriculture in anticipation of unwinding of retail fuel subsidy on MS and HSD.
During same period last year, HSD prices were nearing Rs 110/litre, including Rs15/litre under petroleum levy. This time, HSD price is nearly 50% higher despite the subsidy and this will likely bode negatively for food inflation as most suppliers/tractors use MS/HSD for transporting goods. The impact will be more pronounced specifically when HSD prices are normalized to Rs220/litre upon removal of subsidy.
In contrast, MS sales remained stable despite reduced work hours amid Ramadan. FO sales were strong during Apr-2022, jumping by 62% MoM amid less availability of RLNG for the Power sector which is also corroborated by the increase in PSO’s share in FO sales. One of Pakistan’s suppliers has sent refusal notices to supply four cargoes over the period of Apr-Jun22, pushing Pakistan to rely more on FO for power generation.
Shifting market share trends in Apr-2022
Overall market share trends in April: PSO’s overall market share jumped significantly to 56%, driven by a jump in its share in HSD and FO, thanks to its nationwide presence. In contrast, SHEL and APL are urban centric and are prone to lose share as PSO sales jumped higher than expected.
Petroleum consumption during 10MFY22 rose 17% YoY to c.18.4mnMT. MS and HSD sales grew by 11% and 19%, respectively, given the broad-based economic rebound. FO sales are up 26% YoY due to low availability of RLNG for power generation.
PDC continues despite its fiscal dents
It is worth pointing out that the strong sales in recent months have defied high prices of Rs150/litre, testament to the strength of demand but also because the government contained further price hikes. We expect sales growth to slow substantially in May-2022, more specifically if the government removes the cap on retail fuel prices.
We expect overall PDC outlay to near Rs158bn if it lasts till mid of May-2022, which translates into 0.25% of GDP. We believe, with rising need of fiscal stability, the government should discontinue the Relief Package sooner than later. Simultaneously, we estimate that this will give rise to higher inflation prints in the near-term, where only the removal of retail fuel subsidy will add c.1 percentage point to sequential movement in headline inflation.