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THE KASB REVIEW

STOCK MARKET AT A GLANCE

Updated on May 11, 2002

THE KSE OVERVIEW: THE FRIGHTENED MARKET

The 6% decline in the KSE-100 Index that closed 1798 level this week, down 106 points from the last week's 1904 level coincided with the tragic death of 11 Frenchmen and 4 Pakistanis on May 8 outside the Sheraton Hotel. Falling market momentum coupled with political unrest caused sell-side sentiments resulting in a 22% increase in the Average Daily Volume (ADV) to 154mn shares this week as against 126mn shares last week, whereas, market activity remained bearish throughout the week reaching a low of 1791 level. The market was in an overbought zone owing to the post referendum speculative buying in the last week, where it crossed the 1900 psychological barrier, twice. However, on Monday, investor sentiments seemed dismayed on account of the erupted sectarian violence in the city, and the overdue market correction led the KSE-100 Index to shed 21 points at 1884 level as against 1913 level last week.

Tuesday, the sell side momentum continued with major institutional off-loading felt in Hubco, which led the market to fall further by 39 points to the 1844 level. Hubco closed at PkR25.20 for the day with a turnover of 89million shares, mainly because institutional investors were getting out of the long positions committed in the post referendum euphoria. On the other hand, the selling of Hubco was being taken up at lower levels by relatively smaller players with the anticipation of an upturn in the scrip.

The market's direction was obvious; it plunged down by 55 points to 1791 level. There was panic selling, which led the market to test its intra-day low 70 points down at 1771; scrips like PSO, Shell, Adamjee, Engro, Packages, Al-Ghazi Tractors and National Refinery were hit the most.

Institutional investors supported the market on Thursday as it provided good buying levels and the market recovered 27 points to close at 1817 level. President Pervez Musharraf assured the international community he has held an immediate conference under his chairmanship with all the intelligence organizations and the law enforcement agencies and has decided on a number of measures to ensure protection from or prevention of such international acts of terrorism. Further, President Musharraf assured President Chirac of Pakistan's government firm resolve to deal with international terrorists, who were trying to create a wedge between the two countries. The president invited the French government to assist in the investigation of this act of terrorism.

However, the market gloominess returned on Friday to close the market 18 points below at 1798 level as against 1817 level a day earlier. In the overall week, Badla volumes remained more or less stable whereas, the badla rates took a tremendous beating due to excess liquidity coupled with very low overnight returns in the money market. This can be gauged by that fact that average badla rates remained range bound at 12-18% range over this year but for the last couple of weeks they have remained in the range of 5-12%.

OIL SECTOR REVIEW: UPDATE AND PSO
INDUSTRY OVERVIEW - PRIMARY ENERGY SUPPLIES

Prior to the discovery of natural gas in 1952, oil and coal were the major sources of energy. Oil now forms about 43.5% of country's energy supply with natural gas at 41.4%, hydropower and nuclear at 10.3% and coal at 4.5%.

Proven recoverable crude oil reserves of Pakistan stood at 296mn barrels in 2001 almost 17% higher as compared to 253mn barrels in 2000. The proven oil reserves are negligible if compared globally or within the Asia Pacific region. However, the annual oil production makes up over 16% of the total oil supply as a primary source of energy. Even though the oil reserves are low, they do provide some savings in foreign exchange to Government of Pakistan (GoP).

Pakistan is currently producing 57,763 barrels of oil per day (bbl/d), which is equivalent to 2.83mn TOE in 2001 and is up over 3% from 2.73mn TOE in 2000. The crude oil import rose by over 58% to 7.27mn TOE during 2001 from 4.59mn TOE in 2000. POL product import declined by over 15% during the same period as result of increased refining capacity in Pakistan. With an annual production of around 21mn barrels, Pakistan has approximately over 14 more years of crude oil supply left at current level of recoverable reserves.

REFINING INDUSTRY - CAPACITIES AND PRODUCTION

The commissioning of the 4.5mn tonnes per year refining capacity of Pak-Arab Refinery (PARCO) has helped Pakistan refine imported crude oil for domestic consumption. The result was a jump over 58% in import of crude oil during 2001 with a drop of over 15% in POL product imports.

NEW REFINERY SETUP - BOSICOR PAKISTAN LIMITED

But the import of POL products still accounts for over 50% of the total oil products consumed in Pakistan which leaves further investment potential in setting up new refineries in Pakistan. The demand-supply gap did lead to a new refinery, Bosicor Pakistan Ltd (BPL), being set up in Balochistan since November 2000 and is expected to commence operations by January 2003. With a refining capacity of 30,000bpd or 1.47mn tonnes annually, the total refining capacity in Pakistan would rise to over 12.7mn tonnes by 2003 (an increase of over 13%). The company has already signed a five-year POL supply agreement with Pakistan State Oil Company Limited (PSOCL). Furthermore, the Ministry of Petroleum and Natural Resource (MPNR) has also granted the Company Marketing License for establishing an oil marketing company in Pakistan to BPL.

CRUDE OIL PROCESSING - CHANGED SCENARIO

Dhodak and Attock refineries both process 3.8% and 65.3% of indigenously produced crude oil respectively. National Refinery Limited (NRL) utilizes 14.7% and Pakistan Refinery Limited (PRL) 16.2% of the remaining local crude oil. PARCO processes over 41% of imported crude oil whereas the rest is used up by NRL and PRL. BPL on the other hand would rely on Qatar Marine Crude Oil when it commences operations in January 2003.

POL PRODUCTION

The commissioning of PARCO Refinery has led to a change in mix of POL produced imported or produced locally through refining. The production of the two main POL products, Furnace oil (FO) and High Speed Diesel (HSD) has increased by over 51% and 52% respectively during 2001. PARCO on the other hand produced only 77% of FO and over 53% of HSD out of its total production capacity for the two products. Going forward, we believe that the HSD production alone from PARCO could rise by over 0.7mn tonnes, if needed Kerosene Oil (SKO) production also increased by over 51% with PARCO producing only 30% of its total SKO capacity of 0.64mn tonnes during 2001.

POL IMPORTS - PRODUCT WISE

Pakistan reached a milestone as the government suspended import of Motor Spirit (MS) and HOBC (except FO and HSD) as a result increased local refining capacity and exported excess MS for the first time during 2000-2001.

The import of Kerosene Oil (SKO) dropped by over 94% with HSD following behind at -13%. With further jump in PARCO production the import of HSD would further decline in our opinion with a further rise in imported crude oil.

POL CONSUMPTION
ENERGY PRODUCTS - FUEL

The consumption of POL products remained weak during 2001 on account of a drop in overall agriculture activity, which saw a fall of over 7% in Light Diesel Oil (LDO) consumption, and a decline of over 12% in MS and HOBC consumption due to conversion to a much cheaper alternate fuel source compressed natural gas (CNG).

SECTORAL

Domestic, industrial and agriculture saw a decline in consumption during 2001 by 5.5%, 9.1% and 13% respectively over the last year. Domestic sector consumption, which accounts for over 93% of total SKO consumption, resulted in 6% decline in overall SKO consumption. This could be attributed to a switch to other alternate fuels such as LPG and coal. Transport sector consumption of POL products fell by over 1.8% due to a consumer preference for a cheaper alternate fuel source - CNG.

Power sector on the other hand saw an increase in FO (6.21mn TOE) as the rising demand in electricity coupled with a drop in share of hydel electricity generation to 25.2% of gross electricity generated in 2001 from 29.3% in 2000 translated into higher FO (4.1%) consumption in 2001.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

7.31

6.91

-5.47

Total Turnover (mn shares)

504.52

768.94

52.41

Value Traded (US$ mn.)

257.09

363.07

41.22

No. of Trading Sessions

4

5

 

Avg. Dly T/O (mn. shares)

126.13

153.79

21.93

Avg. Dly T/O (US$ mn)

64.27

72.61

12.98

KSE 100 Index

1904.16

1798.46

-5.55

KSE All Shares Index

1192.54

1131.25

-5.14

.Source: KSE, MSCI, KASB