PSO earning to plunge due to inventory losses

Pakistan’s largest oil marketing company, operating in the public sector, Pakistan State Oil (PSO) is expected to announce its 2QFY23 financial result. The Company is expected to post profit after tax of PKR2.4 billion (EPS: PKR5.1). The said increase can be attributed to increase in HSD offtakes (up 53%QoQ), owed to the sowing demand in the rabi season during October and November 2022.

Recovery in offtakes was imminent as compared to the severely dampened fuel demand (floods/price hikes) during 1QFY23, resulting in total offtakes rising by 26%QoQ during 2QFY23.

The company’s revenue is expected to rise to PKR880.6 billion, changing by 2.1%QoQ/69%YoY, mainly on the back of the rise in fuel prices as compared to the last year (2QFY22: PKR140/124 per liter for MS/HSD).

The company is anticipated to record inventory losses of PKR12.2 billion (PKR26/share) for 2QFY23, as ex-refinery prices for MS/HSD fell by 18%/11% during the period as compared to the previous quarter.

Subsequently resulting in gross margins for the quarter to end at 0.7% as compared to 0.2% 1QFY23.

The effective tax is expected to rise to 56% for the period (vs 1QFY23: 70% ET), as minimum turnover tax (0.5% on gross POL sales) hampers the already beat-down bottom-line.

At a normalized tax rate of 33%, the earnings per share would have clocked in at PKR7.76/share.

Finally, analysts expect the topline from LNG segment to clock in at PKR232 billion, majorly on the back of rising LNG prices globally (energy crunch in Europe/ Asia) coupled with increased volumes (new LNG deal with Qatar @ 10.2% slope, signed last year).

To note, PSO’s average DES price for the quarter stood at US$11.39/mmbtu as against US$13.43/mmbtu in the previous quarter.

The liking for PSO is due to: 1) gas & power tariff adjustments may prove to be cash-positive, 2) modernization plans in refinery subsidiary (PRL) to enhance productivity, and 3) phasing out of RFO coupled with increasing share of retail fuels, resulting in stable margins to drive unhampered future cash flow.

For this reason, our December 2023 price of PKR215/share provides a total return of 53%, with forward dividend yields of 7% for FY23 and /10%for FY24.

Mohammed Bin Salman chosen most influential Arab leader of 2022

Saudi Crown Prince and Prime Minister Mohammed Bin Salman (MBS) has been chosen the most influential Arab leader of 2022, according to an opinion poll conducted by the RT Arabic channel.

The Crown Prince has secured around 7.4 million (62.3%) votes out of the total votes of those who participated in the poll.

MBS obtained 7,399,451 votes out of the total 11,877,546 votes of those polled. The poll began on December 15, 2022 and ended on January 09, 2023.

The percentage of votes obtained by the Crown Prince broke the record in the history of opinion polls that RT Arabic conducts by the end of every year.

In the opinion poll, the second place went to the United Arab Emirates President Sheikh Mohammed Bin Zayed, securing 2,950,543 votes that represent 24.8% of the total votes.

Egyptian President Abdel Fattah El-Sisi won the third place with 1,387,497 votes; making up 11.7% of the total votes of those participated in the poll, carried out by RT Arabic, a global multilingual television news network based in Russia.

2022 a remarkable year of shipping history

According to Seatrade Maritime News, shipbroker Clarkson's ClarkSea index covering about 80% of shipping capacity soared by almost a third to record levels in 2022. Container shipping underpinned the gains but other sectors including car carriers, tankers and LNGs were also star performers.

Shipping’s stellar performance last year was the result of many factors but overall growth in energy shipping of around 4% was one of the fundamentals driving the ClarkSea index to a record US$37,253 per day for the year.

Average earnings for tankers rose by more than 470%, with VLCCs scoring a record rise of 642%YoY. Medium-range product tankers scored well too, notching up a 370% increase in rates for a typical 12 year old vessel – up from US$6,740 a day in 2021 to an average of US$31,775 in 2022.

In contrast, container rates underwent a sharp correction over the second half of 2022, down from record levels at the start. Market reports suggest that rates are likely to weaken further and Clarkson notes that this will coincide with a rise in delivery volumes.

Everything is relative, however, the box market is still firm in historic terms and the reopening of China could have a positive impact, Clarkson suggests.

The container and dry bulk sectors are the most vulnerable to risks from the world economy but uncertainties prevail in other sectors too.

The uncertainties include low orderbooks, the impact of new environmental regulations from January, as well as other ‘inefficiencies’ and geopolitical factors, according to Clarksons Research.

The cross-sector ClarkSea Index stood at US$31,539 per day in early November 2022, significantly below the last year’s average of US$37,548 per day and well down on the 18 successive weeks between March and July when it exceeded $40,000 per day, levels last seen at the height of the 2000s‘supercycle.

During the first half of the year 2022, the container market was exceptionally strong and bulker markets were generally firm, the research firm noted in its most recent market report.

Since then market fundamentals have shifted again. Container markets softened sharply during September and October 2022, partly due to faltering demand and lower port congestion. Bulk carrier earnings, meanwhile, are down by 27% over the second half of the year 2022 as compared to the first-half average.

On the other hand, energy-related shipping markets strengthened, with average tanker earning breaking through US$50,000 per day in October 2022, double the March average.

Ton-mile demand, meanwhile, continues to strengthen as a result of the Ukraine conflict. The war has also had a dramatic impact on gas carrier markets, with VLGC earnings at year-to-date highs and LNG carrier rates at record levels.

The ClarkSea Index rose 3% last week to US$32,482 per day, up 35% year-on-year, and 134% above the t-year trend. Crude tanker rates continued to strength, with average VLCC earnings reaching US$86,860 per day, Clarkson said, the highest level since April 2020. Product tanker rates eased, meanwhile, but MR earnings still remain firm at an average of US$32,047 per day.

Bulk carrier rates remain relatively soft, although the steady decline in Capesize earnings came to a halt, with spot rates rising 41% week-on-week to US$11,657 per day. Panamax and handy vessels are firmer than other bulk segments at present but are still only about half of the mid-May figure of more than US$30,000 per day.

Container rates are also continuing to ease. The Shanghai Containerized Freight Index (SCFI) slipped 9% week-on-week to 1,443 points, below end-2020 levels and only 14% above the 2020 average.

 

 

Direct shipping line launched between Iran and Cuba

Iranian Deputy Foreign Minister for Economic Diplomacy Mehdi Safari said a direct shipping line has been launched between Iran and Cuba which is expected to significantly improve the economic relations between the two countries.

“A Direct shipping line has been established between Iran and Cuba since the last 20 days, which will increase the trade between the two countries,” Safari told IRIB on Monday.

“Based on the conducted research, our country has also the potential to cooperate with Cuba in carrying out various projects, especially in the field of energy,” the official said.

In May 2022, Iran and Cuba finalized a roadmap for barter trade between the two countries and signed a document in this regard during the 18th meeting of their joint economic committee in Tehran.

As reported, the document was signed by Iran’s Deputy Industry Minister for Commercial and Trade Affairs Mohammad-Sadegh Mofatteh and Cuba's Deputy Prime Minister Ricardo Cabrisas Ruiz.

During the meeting, the officials explored the existing capacities and market needs of the other side in various fields and good agreements were reached for long-term cooperation in order to improve the level of trade exchanges.

The two countries also stressed the need for developing industrial, mining, and trade cooperation between the two countries during the mentioned event.

Attended by senior officials and representatives of various economic sectors from both sides, the 18th meeting of the Iran-Cuba Joint Economic Committee was held in Tehran during May 15-17, 2022.

As the special envoy of the Cuban president, Cabrisas Ruiz headed a high-ranking delegation to Iran with the aim of meeting with the officials of the Islamic Republic and attending the meeting of the two countries’ joint economic committee.

During his stay in Tehran, Cabrisas Ruiz also met with Iranian Finance and Economic Affairs Minister Ehsan Khandouzi, during which he stressed the expansion of economic ties between the two countries.

Speaking in this meeting, Khandouzi stated that the Iranian government has always welcomed the establishment of long-term and stable economic relations with Latin American countries, especially Cuba.

“Given the excellent political relations between the two countries, Cuba is of particular importance to the Islamic Republic of Iran,” he added.

Referring to the history of cooperation between the two countries in the fields of health and agriculture, Khandouzi emphasized the need to improve economic relations between the two countries and said: “We are expected to take more serious steps to develop cooperation and implement agreements.”

The minister further pointed to the lack of proper knowledge regarding business and economic opportunities and advantages of trade and investment between the two countries as the most important reason for the weak trade collaborations between Iran and Cuban private sectors.

He then announced Iran’s readiness to hold online meetings with the presence of representatives of the government and private sectors of Iran and Cuba in order to exchange knowledge about the business and investment opportunities of the two countries.

 

Traffic in Suez Canal normalized

Shipping traffic in the Suez Canal was proceeding normally on Monday after tugs towed a cargo vessel that broke down during its passage through the waterway, the Suez Canal Authority said.

The breakdown caused only minor delays, with convoys of ships resuming regular transit by 09:00 GMT, shipping agent Leth said.

The MV Glory, which was sailing to China, suffered a technical fault when it was 38km into its passage southward through the canal, before being towed by four tugs to a repair area, the Suez Canal Authority (SCA) said in a statement.

The Suez Canal is one of the world's busiest waterways and the shortest shipping route between Europe and Asia.

In 2021, a huge container ship, the Ever Given was stuck in high winds across a southern section of the canal, blocking traffic for six days before it could be dislodged.

The MV Glory is a Marshall Islands-flagged bulk carrier, data from trackers VesselFinder and MarineTraffic showed.

It departed Ukraine's Chornomorsk port on December 25, 2022 bound for China with 65,970 metric tons of corn, according to the Istanbul-based Joint Coordination Centre (JCC) overseeing Ukraine grain exports.

The JCC, which includes representatives from the United Nations, Turkey, Ukraine and Russia, said the ship had been cleared to carry on its journey from Istanbul after an inspection on January 03, 2022.

 

QatarEnergy-Chevron Phillips US$6 billion deal

According to Reuters, QatarEnergy announced on Sunday the final investment decision on the US$6 billion Ras Laffan Petrochemicals Complex with partner Chevron Pillips Chemical which is expected to be the largest of its kind in the Middle East.

The complex, expected to begin production in 2026, includes an ethane cracker with a capacity of 2.1 million tons of ethylene per year.

The integrated complex will also include two high density polyethylene derivative units with a total production capacity of 1.7 million tons per year, QatarEnergy, Chief Saad al-Kaabi Kaabi said.

Originally announced in 2019, the project highlights how Middle East oil producers are expanding further into petrochemicals, used in the production of plastics and packaging materials, to move into new markets and find new sources of income beyond exporting crude oil and natural gas.

State-run QatarEnergy will hold a 70% stake in the venture with Chevron Phillips Chemicals holding 30% under the agreement signed on Sunday.

“This marks QatarEnergy's largest investment ever in Qatar's petrochemical sector," Kaabi said.

The complex, located in Ras Laffan industrial city, is an important milestone in Qatar's downstream expansion strategy, he said.

Qatar, one of the world's top producers of liquefied natural gas (LNG), will see its ethylene production capacity double on the back of the new complex. Local polymer production will also increase from 2.6 million to 4 million tons per annum.

The Gulf state, one of the most influential global players in the world's LNG markets, is expanding its North Field gas field that will see its liquefaction capacity increase from 77 million tons per annum to 126 million tons by 2027.

Iran export from Sistan Baluchestan up 32%

The value of non-oil export from Sistan-Baluchestan province, in the southeast of Iran, rose 32% in the first nine months of the current Iranian calendar year (March-December, 2022), as compared to the same period last year, according to a provincial official.

Mojtaba Shojaei, the Director General of the province’s governorate’s office of economic affairs coordination, said 1.165 million tons of products worth US$165 million were exported from Sistan-Baluchestan in the mentioned nine-month period, indicating also 78% growth in terms of weight YoY.

He named cement, clinker, travertine stone, coal coke, coal, dates, gas, vegetables, agricultural poison and agricultural products as the main exported items, and Pakistan, Afghanistan, India, Iraq, Kuwait, the United Arab Emirates (UAE), Turkmenistan, Uzbekistan and Indonesia as the major export destinations.

The official further announced that 1,157 tons of commodities valued at US$1.184 million were imported to the province in the first nine months of the present year, with 17% rise in value, while 26% drop in weight, year on year.

He named wheat, rice, cattle corn, cattle oats, mango, banana, sesame, potato, live livestock, fabric, tea, car spare parts, light and heavy car tires, cooling devices, spices, and fish as the main imported items, and Russia, Pakistan, France, Germany, India, Brazil, United Arab Emirates, China, Thailand and Afghanistan as the major sources of imports during the first nine months of the current year.

Based on the data released by the Islamic Republic of Iran Customs Administration (IRICA), the value of Iran’s non-oil export rose 19 percent from the beginning of the current Iranian calendar year (March 21, 2022) up to December 31, as compared to the same period of time in the past year.

According to the IRICA data, Iran exported 97.843 million tons of goods valued at US$43.088 billion in the mentioned period, also registering 2% increase in weight

Liquefied natural gas, liquefied propane, methanol, liquefied butane, and film-grade polyethylene were the main exported products in the said time span.

Major export destinations of the Iranian non-oil goods were China, Iraq, Turkey, the United Arab Emirates, and India.

The Islamic Republic has also imported 28.18 million tons of non-oil commodities worth $44.337 billion in the first 286 days of the present year, with a 14.7% growth in value and a 10% increase in weight, year on year.

The major items of goods imported into the country in the said period include corn, rice, wheat, soybeans, sunflower seed oil, and cell phones, based on the IRICA data.

The United Arab Emirates was the top exporter to Iran in the mentioned period, followed by China, Turkey, India, and Germany.

Reportedly, the value of Iran’s non-oil trade rose 17% during the mentioned period, as compared to the same time period last year.

Iran traded more than 126 million tons of non-oil products worth over US$88 billion with other countries in the mentioned period.