The Hindu Business Line : IOC March refining margin seen at record

Kolkata, March 20 March may prove to be a watershed month for the refining operations of IndianOil. Having witnessed sharp decline in refining margins in January and February, IOC is now headed to touch the $11 a barrel margin in March, enough to lift the GRM (gross refining margin) for the quarter to $9 a barrel.

According to sources, this will also help the PSU refiner to generate a GRM of $9 a barrel for 2007-08, nearly 80 per cent higher than that of 2006-07.

Having posted a margin of $10.8 a barrel in the third quarter, IOC witnessed a drop in GRM to approximately $4 a barrel in February, due to sudden volatilities in crude and product prices and the trade loss resulted due to historic price benchmarks used by the company.

“A record high in refining margin improved the scenario beyond our expectation in March,” senior company official told Business Line.

Contributing factors

Apart from the global price movements, the sustained effort by the company for the last two years to refine higher quantities of cheaper crude and increase the distillate yield as well, was a major reason behind the increase in refining margin in 2007-08.

According to sources, compared to 2006-07, IOC has processed seven per cent more high-sulphur crude. This apart, the company has also processed three to four per cent more heavy but low sulphur crude (which is cheaper than sweet crude but costlier than heavy -high sulphur crude).

Overall efficient refining measures have contributed a clear $1.5 barrel mark-up to the refining margin of IndianOil in 2007-08.

Sold more bonds

High refining margin notwithstanding, record volatility in crude oil prices and unprecedented marketing loss has forced the company to take higher exposure to borrowing market during the year to meet the immediate cash requirements.

“The total borrowings as on March 31, 2008 may reach Rs 32,000 crore – Rs 34,000 crore against Rs 27,000 crore on March 31, 2007,” a company source said. The bulk of the fresh borrowings was short term in nature.

The company has also sold Rs 580 crore of oil bonds this week, taking the total sales of oil bonds during the quarter to over Rs 2,000 crore. Further sell-off of approximately Rs 1,000 crore worth of bonds is planned in April.

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IOC March refining margin seen at record

Clarification