by NUR HANANI AZMAN/ pic credit: hrc.com.my
HENGYUAN Refining Co Bhd fell into the red in the first quarter ended March 31, 2020 (1Q20) with a net loss of RM124.12 million compared to a net profit of RM21.57 million last year, as global crude oil prices fell and demand weakened due to pandemic containment measures.
Quarterly revenue fell 13.9% to RM2.55 billion from RM2.96 billion the year prior, the group said in an exchange filing yesterday.
“The financial performance for the current quarter was impacted by low market refining margins, primarily due to a sudden drop in global oil prices resulting from a price war and a significant drop in demand for oil products following the implementation of a Movement Control Order by the government in mid-March 2020 to curb the Covid-19 pandemic,” it said.
Sales volume for 1Q20 fell to 9.9 million barrels from 10.3 million barrels last year.
Refining margins were also adversely affected by higher crude premiums and stock holding losses, as the market saw crude prices falling from US$67 to US$32 (RM136.83) per barrel.
“These were cushioned by the effects of both margin and commodity hedges, which Hengyuan had put in place as part of its risk management measures,” the group said.
Higher operating expenses for the current quarter were mainly due to planned maintenance activities.
The group also recorded foreign-exchange losses of RM79.1 million (net of fair value gains on the outstanding foreign currency swaps) in the current quarter, as the ringgit weakened from RM4.10 to RM4.31 against the greenback.
The losses were largely attributed to the firm’s US dollar-denominated borrowings.
Depreciation and amortisation costs were comparatively lower as the group fully depreciated a portion of its property plant, and equipment and intangible assets at end-2019.
Hengyuan added that the Euro 4M Mogas project, initially scheduled for completion in 4Q20, has been delayed due to Covid-19 and consequent international lockdowns.
The delay is not expected to have any significant adverse effects on its operations and supply abilities.
The government mandated the switch to Euro 4M standard for Mogas (motor gasoline) effective Jan 1, 2020.
Hengyuan said it has been able to produce some volumes of Euro 4M Mogas based on the plant’s existing configuration in fulfilling its supply obligations to customers.
“Should additional volumes are required by our customers, the company may choose to meet these orders with internally produced volumes or by purchasing additional volumes from the open market, depending on the commercial viability at the time,” it added.