IOC surges ahead of pvt companies in refining margin

Beating private sector peers like Reliance Industries, when it comes to gross refining margins (GRM) is no mean achievement, and that is exactly what state-owned downstream company Indian Oil Corporation (IOC) managed to do in the first quarter of the current fiscal.

During April-June 15, IOC’s GRM was at a six-year high of $10.77/barrel. against $2.25/barrel for the corresponding period, last year. On the other hand, the GRMs for RIL stood at $10.4/bbl, the highest for the company in last six years. So what exactly led to this huge spurt in GRMs of IOC?

According to an IOC spokesperson, the hike in GRMs are manifold. “While the crude prices fell the finished product prices (MS&HSD) fared better leading to better margin realisation. The fuel and loss for the period reduced to 8.5 per cent compared with 8.8 per cent during the previous year,” the spokesperson said.

Distillate yield improved at 79.1 per cent, compared with 78.2 per cent during the previous year, capacity utilisation for the refineries also improved and substantial inventory gain during the period due to crude price hike also added to the GRM gains, the spokesperson added.

When asked whether these GRMs are sustainable, the spokesperson said it would be difficult to predict. “As regards your question whether the GRMs can be maintained going into the future, I would like to advise that it is difficult to predict the same considering the variables,” the spokesperson said.

The recent fall in crude prices could again lead to inventory losses since the crude procurement to finished product sales is a 60-days cycle. So while the main non-controllable would be the trend of crude and finished product prices, the controllable in terms of physical performance are likely to be maintained, the spokesperson added.

Brokerages certainly believe that the company is set for better GRMs in the days ahead. “While the GRM in Q1FY16 is unlikely to be repeated over the next few quarters, we believe the company is likely to earn better GRM than it earned over FY13-15,” HSBC said.
“We expect better GRMs, driven by higher fuel oil margins; lower fuel costs due to low oil prices coupled with completion of refinery projects,” Morgan Stanley said in a recent report.
DH News Service