Refinery: Quarterly GRMs fall to a year low, losses expected

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Refinery: Quarterly GRMs fall to a year low, losses expected

Industry GRMs hit the lowest point in a year

In the fourth quarter of fiscal year 2024 (4QFY24), the average industry Gross Refining Margin (GRM) is expected to be around $3.8 per barrel. This marks a significant decrease of 40% compared to the previous quarter. Individual company GRMs may vary based on their product mix and crude oil grade. Among the refiners, Attock Refinery Limited (ATRL) stands out due to its higher-margin products, strong cash reserves, and stable earnings.

The decline in product prices impacts GRMs

Refiners’ profits depend on the difference between the prices of refined products and crude oil. The diesel (High-Speed Diesel or HSD) spread a key profit indicator, dropped sharply from $23.5 per barrel in the third quarter (3QFY24) to $14 per barrel in 4QFY24, a 41% decline. This was primarily due to a mild winter, which reduced global diesel demand.

Despite Russia’s ban on petrol (Motor Spirit or MS) exports for a few months, the MS spread fell by 53% to $3 per barrel, down from an average of $6 per barrel in the previous quarter. On the other hand, the price of furnace oil (FO) increased by an average of 14%, improving its spread from negative $20 per barrel to $16 per barrel in 4QFY24.

ATRL’s performance outlook

Expected earnings per share (EPS) for 4QFY24

  • ATRL: Assuming an average GRM of $9 per barrel, ATRL is expected to post an EPS of Rs26.1 in 4QFY24, a 48% decrease from the previous quarter. The company is anticipated to operate at 68% capacity due to lower product upliftment.
  • PRL: Pakistan Refinery Limited (PRL) is expected to post a loss of Rs3.5 per share in 4QFY24, bringing its cumulative EPS to Rs4.8 for FY24. PRL’s average GRM is projected to be around $1 per barrel, significantly lower than the $5 per barrel in 3QFY24.

Other listed refineries are also likely to incur losses in 4QFY24 due to the sharp decline in GRMs.

Potential liquidity concerns

The current low GRMs may create liquidity issues for some refiners, potentially affecting their plant upgrade projects under the new policy. The profit on processing crude is lower than the cost for most listed refineries globally, leading to potential reductions in operations to stabilize product prices. In Pakistan, the industry GRM below $1 per barrel could impact profitability, as the average processing cost is around $4-5 per barrel.

Factors affecting GRMs

The significant reduction in GRMs is mainly due to shrinking diesel profit margins. New refineries in Oman, Kuwait, and Nigeria have increased supply at a time when demand is low due to a mild winter and slow economic activity. Diesel, which makes up more than 40% of local refinery production, has seen its price fall more sharply than crude oil in recent months, leading to a substantial reduction in its spread.

Sector overview

MetricCurrent Value3 months6 months12 months
Market Cap (Rs bn)97104.5102.390.8
Turnover (mn shares)10.425.130.037.1
Traded Value (Rs bn)
Source: PSX, Sherman Research


The information in this article is based on research by Sherman Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.

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