Pakistan: Energy supplies far from satisfactory

The incumbent government continues to say that Pakistan has ample supplies of petroleum products, the situation seems far from satisfactory. The fears are growing that if Pakistan and IMF fail in arriving at the consensus at the earliest supplies will dry in weeks.  

It may be recalled that on January 19, 2023 Petroleum Division wrote a letter to Governor, States Bank of Pakistan (SBP) to draw attention to the limited stocks of POL in the country and impending dry-out.

The SBP was asked for immediate establishment of 32 credit letters of refineries (PARCO and PRL) and oil marketing companies (PSO, GO, Hescol, BE, TAJ, PUMA, APL, EURO and Flow) to ensure import of crude oil and petroleum products.

The official said that when the country was not faced with the letters of credit crisis, 4-5 petrol cargoes were being imported, which was now down to 1.5 cargoes. However, three petrol cargoes of PSO, GO and Shell would soon arrive in the country.

PSO is importing a cargo of 50,000 metric tons, whereas cargoes of GO and Shell were smaller. However, it will be enough to avert the dry-out for the next fortnight,” the official informed.

It has been reported that State Minister for Petroleum Musadik Masood Khan will meet Governor SBP on Wednesday to discuss prioritized opening of credit letters to import petrol, an official of the Energy Ministry said.

The SBP governor would also be briefed about the current stocks of POL in the country by the petroleum minister.

Under the first priority list, DG oil recommends SBP to establish 23 letters of credit for the import of crude oil and petrol.

Under the second priority, 5 letters of credit need to be established for the import of high-speed diesel, whereas under the third priority list, 4 L/Cs for the import of lubricants had been recommended to the central bank.

According to the first prioritized list, PARCO needs the establishment of L/Cs for the import of two cargoes each having 535,000 barrels from ADNOC, one on January 13 and the other one on January 19. PRL also needs the opening of L/C for the import of 532,000 barrels of crude oil on January 30, 2023.

OMCs like PSO need the immediate establishment of L/Cs for the import of two cargoes, with each having 50,000 metric tons of petrol; one on January 17 and the other one on January 26. GO needs the opening of 6 L/sCs to import 6 petrol cargoes, BE needs 4 L/Cs to import petrol, TAJ and HPL need two L/Cs, whereas PUMA, APL and Flow need one L/C each to import their respective petrol cargoes.

The second priority list is for the import of HSD. OMCs such as TAJ need the opening of L/C to import 4,000 tons on February 4, 2023, while GO needs to establish 3 L/Cs for import of three cargoes having HSD on February 25-27.

Under the third priority list for the import of lubricants, PSO needs to establish L/Cs for import of three cargoes on March, 30, May 25, and May 20, and EURO is required to open L/C for one cargo of lubricants, which has already arrived.

Oil and Gas Regulatory Authority (OGRA) strongly refuted the claims on petrol/diesel shortages in the country on Tuesday.

OGRA Spokesman Imran Ghaznavi said, “The country has sufficient petrol and diesel stocks for meeting the demand for 18 and 37 days respectively. Furthermore, ships carrying 101,000 metric tons petrol are at berth/outer anchorage.”

Local refineries have been playing their due role in meeting the demand of petroleum products, the spokesman added.

 

 

Europe: Mild winter shifts LNG trades

LNG markets continue to surprise. At the beginning of 2023, the big themes were that European imports would continue to drive seaborne ton-miles higher, supplemented by a resumption of imports into China as economic activity resumes.

In a mid-January webinar presentation by Kristen Holmquist, the lead data analyst at shipbroker and LNG consultancy Poten & Partners, these observations were buttressed by deep underlying analytics.

Any predictions of what might happen are highly nuanced, and subject to a variety of “what-if?” considerations. But Poten’s analytical team suggests that overall seaborne LNG tonnages might rise to around 415 million tons in 2023, up around 20 million tons from 2022.

A major contributor to this uptick will be the US, with the damaged Freeport LNG facility, in the US Gulf (capable of exporting 1.0 - 1.3 million tons/month), to come back online during Q12023, Poten expects. Others are more cautious; Rystad Energy said that a full ramp-up might not occur until mid-2023.

The big demand-side driver of all these numbers is Europe; in Holmquist’s words, “Europe is expected to be in good shape at the end of the winter.” So far, the 2022-23 Winter has been warmer than anticipated, leading to lower gas import demand.

However, pipeline imports from Russia have been down dramatically, with further decreases anticipated during 2023. A big part of the demand picture is driven by imports of LNG in advance of the Winter season.

Holmquist said that the storage buildup during 2022 “…was higher than we expected…” and she added that, so far during the warmer than normal winter months, the levels of gas in storage “…have come down by less than we expected.” The result is that storage is at historically high levels.

China’s economic activity is expected to rebound in 2023, and so the country is also expected to account for 6 million tons of additional demand in 2023 as compared to 2022, though it was noted that anticipated seaborn import levels are still 9.5 million tons below 2021’s 80 million tons.

What does all this mean for LNG shipping? Seaborne rate dynamics were not covered explicitly in the Poten webinar, but it’s possible to offer some demand-side observations on this question. Though much of the gas coming out of the US is sold under term contracts, US exports are often shipped on an “FOB” basis- meaning that purchasers can direct cargoes to either Europe or Asia.

One important feature of the markets has been the sharp drop in European prices as measured by the TTF indicator; after seeing elevated levels for much of 2022, they are now below the Asian JKM numeraire.  

So, at least for this increment of LNG shipping, with the US anticipated to export up to 90 million tons in 2023, we may see a ton-mile increase. With higher prices in Asia, more cargo flows to Asia might balance what may be a lower demand for cargoes bound for Europe with its reduced need to fill up storage in advance of the 2023-24 gas season”, which starts in October.

Anecdotally, analysts at Rystad said that US exports to Asia rose 38% in the first half of January, while gas shipments to Europe slid by 22% during the same time period. They add, “While we do not anticipate an immediate diversion of cargoes towards Asia, with the expected rebound of China gas demand during the year, Europe and Asia markets will undoubtedly see increased competition for available LNG supplies.”

Courtesy Seatrade Maritime News

 

Pakistan Needs Effective Debt Restructuring

Pakistan’s leading brokerage house, Topline Securities, in its report titled “Pakistan’s Debt Restructuring - External Debt Repayment Crisis” dated December 03, 2022, had highlighted Pakistan’s external debt repayment obligations of US$24 billion annually and the need to address these in a sustainable way. The brokerage house opined these external debt repayments are too high and should ideally be rescheduled and reduced to sustainable levels.

The brokerage house further highlighted that current foreign exchange crisis was mainly driven by external debt obligations and not trade unlike Pakistan’s previous foreign exchange crisis of 2008. Therefore, despite ongoing import controls, Pakistan’s foreign exchange reserves continue to dwindle to 9-year low at US$4.6 billion only as debt repayments continue to come due and are serviced.

Falling foreign exchange reserves, delay in IMF review and slow policy actions are adding to Pakistan’s distress. Resultantly, despite of more than US$10 billion pledges, Pak Rupee (PKR) black market premium is continuously rising and has increased from 10% a few weeks back to 15% now when compared to the official interbank rate.

The brokerage house highlights that the true culprit of the current debt conundrum is short term rollovers that have increased by 9 times to over US$12 billion since 2015. It is of the view that external debt restructuring is an eventuality, and the mode of restructuring, that is orderly or disorderly, will test Pakistan’s economic vulnerabilities.

The brokerage house believes that Pakistan should ideally try to convert its short term external loans with long term with the help of friendly countries like China, Saudi Arabia, United Arab Emirates etc, if that is not doable than Pakistan should try G-20 common framework of debt restructuring. These are less painful and will help recovery soon without affecting credit ratings. 

If the Government of Pakistan does not opt for orderly and amicable restructuring and continues to rely on short term funding from friendly nations or relief in the form of low cost loan vis-a-vis for floods to manage the country’s external accounts, the country could move towards a disorderly and coercive restructuring that will be very painful and may trigger a further credit rating downgrade.

After brokerage house’s earlier report, many other experts, trade bodies and polls suggest that Debt Restructuring is the most viable solution that can help reduce debt burden and will lead to relatively faster economic recovery.

The Monetary Policy Announcement of January 23, 2023 underscores the need for debt restructuring as US$8 billion of debt still needs to be dealt with in next 5 months till June 2023 while the country’s reserves are half of that. Even if the bulk of this amount is rolled over as the SBP is alluding to, the meter will again reset on July 1 when the rollovers will restart for FY24.

A few countries including Angola, Greece, Argentina, Ghana, Sri Lanka and Zambia among others have gone through debt restructurings. Based on their experience, the brokerage house found that orderly and timely debt rescheduling is relatively less painful and provide better chances of quicker economic recovery.

 

Sri Lanka: China offers debt moratorium

The Export-Import Bank of China has offered Sri Lanka a two-year moratorium on its debt and said it will support the country's efforts to secure a US$2.9 billion loan from the International Monetary Fund (IMF), according to a Reuters report.

India wrote to the IMF earlier this month, saying it would commit to supporting Sri Lanka with financing and debt relief, but the island nation also needs the backing of China in order to reach a final agreement with the global lender.

China's January 19, 2023 letter sent to the finance ministry may not be enough for Sri Lanka to immediately gain the IMF's approval for the critical loan, a Sri Lankan source with knowledge of the matter said.

Regional rivals China and India are the biggest bilateral lenders to Sri Lanka, a country of 22 million people that is facing its worst economic crisis in seven decades.

According to the letter, the Export-Import Bank of China said it was going to provide an extension on the debt service due in 2022 and 2023 as an immediate contingency measure based on Sri Lanka's request.

At the end of 2020, China EXIM bank had loaned Sri Lanka US$2.83 billion which is 3.5% of the island's debt, according to an IMF report released in March 2022.

"...you will not have to repay the principal and interest due of the bank's loans during the above-mentioned period," the letter said.

"Meanwhile, we would like to expedite the negotiation process with your side regarding medium and long-term debt treatment in this window period."

Sri Lanka owed Chinese lenders US$7.4 billion, or nearly a fifth of its public external debt, by the end of last year, calculations by the China Africa Research Initiative showed.

"The bank will support Sri Lanka in your application for the IMF Extended Fund Facility (EFF) to help relieve the liquidity strain," the letter said.

The Sri Lankan source, who asked not to be identified because of the sensitivity of the confidential discussions, said the island nation had hoped for a clear assurance from Beijing on the lines of what India provided to the IMF.

"China was expected to do more," the source said, "This is much less than what is required and expected of them."

Sri Lanka's central bank chief P. Nandalal Weerasinghe said on Tuesday that the country hoped for assurances from China and Japan, another major bilateral lender, soon and complete debt restructuring in six months.

 

Pakistan Black Monday: Electricity Outage Mystery

On Monday January 23, 2023 almost the entire country plunged into darkness. While supply has been restored partially, many areas are still without electricity.

The official sources say it may take 48 to 72 hours to restore supply to all the consumers due to some technical reasons.

Even a person with ordinary wit fails to accept ‘official statements’ at face value due to confidence deficit. This has switched on rumor mill because whatever officials is being termed ‘dubious’.

The overwhelming perception is that it was a preamble of default and reminds the situation in Sri Lanka. A little before officially announcing default, the government ran out of funds to import fuel.

At late night there was a rush at petrol pumps because there were rumors that Pakistan has been left with 7 days petrol.

One of the opinions was that the incumbent government stopped power plants which have helped in saving US$ one billion in less than 24 hours.

However, many analysts question this saving because markers, offices, factories ran on standby generators which used millions of gallons of diesel etc.

If one adds to this the value of production loses the amount goes much higher to the saved foreign exchange.

With each passing day the situation is getting from bad to worse. Banks are refusing to extend foreign exchange for opening up lf letters of credit as well as refusing to negotiate documents.

Demurrages are mounting and goods are becoming stale.

 

 

Pakistan: Textile exports down 16.5%YoY

According to data released by Pakistan Bureau of Statistics (PBS), textile exports for the month of December 2022 were reported at US$1.36 billion, down by 4.6%MoM while lower by 16.5%YoY.

The sequential decrease can be attributed to across the board slowdown with disposable income dropping in export destinations, along with operational challenges in the form of heightened input costs and increased finance costs. To note, the SBP has also increased the rates under the EFS and LTFF programs to 13% in December 2022.

Cumulative textile exports were recorded at US$8.7 billion in 1HFY23, lower by 7.1%YoY. For the month of December 2022, the 6.7%MoM dip in value-added textiles was offset by an 8.3%MoM growth in the non-value added segment.

Within the non-value-added exports, the brunt of the growth was driven by cotton yarn, wherein exports increased by 24.4%MoM, with a substantial increase of 39%MoM in the quantities exported.

As for the value added segment, exports of Knitwear dipped by 11.6%MoM to US$353.7 million, with volumes dropping by 11.2%MoM to 15 million dozens in December 2022.

Moreover, data indicates that exporters may have had to offer lower prices in a bid to increase volumes. Wherein, average prices of Knitwear during the month were down by 0.5%MoM and 3.3% lower than the 6MFY23 average realized price.

The same is true in the non-value added segment, with cotton yarn exports averaging realized price ofUS$3,076 per ton during the month, lower by 10.6%MoM and down by 14.3% as compared to 6 month average during December 2022 Cotton prices receding in the local market

Cotton prices in the local market have dropped in the recent past, from recent highs of PKR24,649/40kg reached in August 2022 to PKR21,434/40kg currently—depicting a drop of 13%.

On the international front, recently, prices have rebounded from recent lows of USc89.2/lb reached in Nov’22, to currently trade at USc100.6/lb.

On an FYTD basis, prices have dropped by 27.8%. While the local prices are lower than international prices (equivalent to PKR20,221/40kg at prevalent interbank rate of PKR228/US$).

Moreover, the harvesting of local cotton is challenging amid devastating floods and declining cotton crop cultivation.

As evident by the 6MFY23 numbers thus far, down by 7.1%YoY, textile exports are expected to remain lackluster for the remainder of the year. Going forward, textile exports are expected to remain under pressure owing to weak macros of key export markets.

Analysts expect 10-15% dip in textile exports in FY23 predicated on the less-than optimal economic situation brewing elsewhere in the world, with inflationary pressures remaining elevated in the developed world.

For example, CPI inflation in the US clocked in at 6.5% last month, which while lower than earlier readings, remains significantly higher than the target of 2%-- which would lead to reduced disposable incomes, in turn leading to a dip in demand in the medium term. Furthermore, expected increases in gas prices would lead to a contraction in the margins of textile industry.

Israel: Netanyahu fires Aryeh Deri

Israeli Prime Minister Benjamin Netanyahu dismissed a senior cabinet member with a criminal record on Sunday, complying with a Supreme Court ruling even as he pursues contested judicial reforms that would curb its powers.

Pledging to find every legal means of keeping Aryeh Deri in public office in future, Netanyahu told him during a weekly cabinet session he was being removed from the interior and health ministries, according to an official transcript.

A Deri confidant, Barak Seri, told Army Radio earlier on Sunday that the portfolios would be kept by other members of the ultra-Orthodox Jewish party Shas as it remains in the coalition.

The Supreme Court last week ordered Netanyahu to dismiss Deri, citing his 2022 plea-bargain conviction for tax fraud.

That ruling stoked a stormy debate in Israel - accompanied by nationwide protests - over reform proposals that Netanyahu says will restore balance between the branches of government but that critics say will undermine judicial independence.

A poll in Israel Hayom newspaper found 35% support for Netanyahu's bid to shake up the system for bench appointments, with 45% of respondents opposed. There was just 26% support for his government's bid to enable parliament, with a one-vote majority, to override some Supreme Court decisions.

In his cabinet statement, Netanyahu described the Deri ruling as regrettable and indifferent to the public will.

The less than month-old religious-nationalist coalition creaked elsewhere as a far-right partner boycotted the cabinet session in protest at the demolition on Friday of a small settler outpost that had been erected in the occupied West Bank.

Israeli Defence Minister Yoav Galant, a member of Netanyahu's conservative Likud party, ordered the outpost to be razed as it had no building permit - over the objections of the Religious Zionist party, which had sought to delay the decision.

The incident pitted Galant against Religious Zionism leader Bezalel Smotrich, who wields some cabinet responsibilities for West Bank settlements under a coalition deal with Netanyahu.

A group of settlers tried on Sunday to rebuild the outpost but they were blocked by Israeli security forces. Seven people were detained, said a border police spokesman.

"This settlement is a capstone issue for our participation in the government," National Missions Minister Orit Strock of Religious Zionism told Israel's Kan radio. She declined to elaborate on what steps the party might take next.

In solidarity with Religious Zionism, fellow far-right coalition party Jewish Power said it would demand that Israel implement a long-delayed evacuation of Khan al-Ahmar, a Bedouin Palestinian encampment in a key West Bank area near Jerusalem.

World powers have urged Israel not to demolish Khan al-Ahmar, worrying about another potential blow to efforts to negotiate the creation of Palestinian state alongside Israel. Most countries deem Israel's West Bank settlements illegal.