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BEARISHNESS PREVAILS; SLIDING OIL PRICES, MSCI REVIEW AND VOLATILE POLITICAL STATE HOLD ACTIVITIES

The benchmark index of Pakistan Stock Exchange (PSX) shed 592 points (down 1.43%WoW) during the week ended 17th November 2017 to close at 40,844 levels. MSCI’s semi‐annual review and slipping crude oil prices remained the major highlights of the week, while investors remained concerned about volatile political situation.

In its review MSCI reclassified ENGRO from large cap to small cap stocks, while FEROZ, PSMC, and SHEL have been removed from small cap stocks. Prices of shares of E&P companies were impacted negatively by the declining oil prices and abrupt shut down of furnace oil based power plants disrupted the entire energy supply chain. Other news flows included: 1) during 4MFY18 trade deficit widened by 32.2%YoY to US$12.1 billion on the back of exports rising to paltry US$7.1 billion and imports to US$19.2 billion, 2) SBP reported a jump of 74% in 4MFY18 FDI to US$939.7 million as against US$538.7 billion during 4MFY17 with China alone contributing US$630 million, 3) ADB unveiled its latest country operations for Pakistan for 2018‐20 with resources available amounting to US$4.7 billion including US$ one billion for hydropower resources, 4) American Congress authorized payments up to US$700 million under CSF for providing logistic supports for operations in Afghanistan, 5) PAMA released auto sales data indicating industry sales rising by over 59%YoY in October 2017 to 24,000 units and 6) country’s foreign reserves declined to US$19.7 billion during the week ended on 10th November 2017. Average traded volumes for the week further shrinked to 106.05 million shares from 113.84 million a week ago. The top volume leaders were: ANL, TRG, SSGC, SNGP and KEL. While the major gainers were: ASTL, NCL, INDU, FFBL and MLCF, the laggards included: ENGRO, KEL, PSO, CHCC and EFOODS. Foreign participation inched higher with a net inflow of US$1.13 million as against a net outflow of US$1.78 million in the previous week. In OPEC’s 173rd ordinary meeting scheduled on 30th of this month, members are likely to agree on extension of production cuts and further production cuts cannot be ruled out on the back of rising US oil exports. In this backdrop, market is likely to be influenced by international oil prices.

Asian Development Bank (ADB) has unveiled a new country operations business plan for Pakistan for 2018-20 with indicative resources available amounting to US$4.673 billion. The funds will be provided for energy, transport, agriculture, water, public sector management, finance and social sectors. Of this amount, loans worth US$3.39billion will come from regular ordinary capital resources and US$1.28billion from concessional lending. Being a group ‘B’ developing member country, Pakistan is eligible for both, ordinary capital resources and concessional lending. However, the final allocation of the loans by year and sector will depend on available resources and performance assessments of the country. These resources will be supplemented by ADB’s non-sovereign operations subject to headroom constraints, as well as by official and commercial co-financing. Funding from other sources, including the regional pool set-aside under concessional and ordinary capital resources for regional cooperation and integration, will also be explored.

 

Mari Petroleum Company Limited (MPCL) has announced discovery a new hydrocarbon deposit in Ghotki, Sindh. It is a significant gas discovery resulting from its new exploratory efforts at Tipu-1. The well was spud-in on 5th July 2017 and successfully drilled to a depth of 3,944 meters. It was drilled with the objectives to test the hydrocarbon potential of Northern Compartment at Lower Goru B Sand level as well as assess the hydrocarbon potential of probable shale and tight gas potential. The drill stem tests carried out in Lower Goru B Sand, flowed gas at a rate of 15.5 million cubic feet per day (mmcfd) at well-head flowing pressure of 2,153 PSI at 40/64 inch choke size. Subsequently, the well produced 21.4 mmcfdgas at the rate of 40/64 inch choke size.

Pakistan State Oil Company (PSO) faces serious liquidity problems as its receivables have swelled to Rs307 billion. Out of this Rs276 billion pertains to power sector and Rs15.7 billion to PIA. As of 13th November 2017, the receivables of the state-owned entity has surged up to Rs307.1 billion owing to which its capacity to maintain the operations of importing the furnace oil for power plants and jet fuel for PIA has eroded substantially. The power sector companies and national airline have to pay Rs71 billion to PSO as late payment surcharge. This amount will have to be paid from the national exchequer just because of these entities have failed in making timely payments. According to the details, powergeneration companies have to pay the huge amount of Rs155.5 billion and on top of that the price differential on LSFO, HSFO amounting to Rs3 billion. In addition the payments due from IPPs are: HUBCO (Rs81.5billion), KAPCO (Rs35.1billion) and Southern Electric Company (Rs0.1billion).

A consortium of state-owned companies, Oil and Gas Development Company Limited (OGDCL) and Pakistan Petroleum Limited (PPL), is being formed to undertake pilot projects to assess the cost of extracting shale gas and oil after identification of their massive reserves in potential areas. The pilot projects are likely to be executed in selected areas of Balochistan, Sindh and Khyer Pakhtunkhwa. A study undertaken withthe cooperation of USAID in 2015 had confirmed presence of 10,159 trillion cubic feet (TCF) shale gas and 2,323 billion of stock tank barrels (BSTB) shale oil in these areas. According to the study, there are 188TCF gas and 58 BSTB oil technically recoverable resources, while the risked technically recoverable resources estimated are 95TCF gas and 14 BSTB oil. The study covered lower and middle Indus Basin, which geographically spread over Sindh, southern parts of Punjab and eastern parts of Balochistan.

The declining trend in cement exports continued in October 2017, slipping to 0.443 million tons from 0.518 million tons, a fall of 14.55% as compared to same month last year. According to the industry, higher cement consumption in the country, a sign of growing economy that is having positive impact on over three dozen industries connected with construction sector. The industry has pointed out the reasons for decline in exports that is worrisome as the manufacturers still has idle capacity and almost the entire decline is in exports sea shipments. Exports to India are also affected but not to that extent. According to All Pakistan Cement Manufacturers Association (APCMA), the cement demand in the North Zone remained surprisingly highat 3.148 million tons during the month under review.

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