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NNPC Trading Deficit Rises by 128%, Refineries Lose N8.5bn

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refineries
  • NNPC Trading Deficit Rises by 128%, Refineries Lose N8.5bn

The Nigerian National Petroleum Corporation saw its trading deficit rise by 128.5 per cent in July to N11.87bn, with the nation’s crude oil refineries responsible for most of the loss.

The NNPC, in its latest financial and operations report obtained by our correspondent on Friday, noted that the N11.87bn deficit was an additional loss of N6.68bn relative to the previous month’s deficit of N5.19bn.

The refineries lost a total of N8.52bn in July, as their combined capacity utilisation dropped to 11.94 per cent.

The country’s refineries are the Warri Refining and Petrochemical Company, Port Harcourt Refining Company, and Kaduna Refining and Petrochemical Company.

The Kaduna refinery, which did not process any crude in June and July, lost N3.6bn in July; Port Harcourt refinery lost N2.63bn; and the WRPC recorded a deficit of N2.28bn.

The corporation said, “The unimpressive performance of the downstream is mainly due to high crude oil inventory and the shutdowns of the KRPC and the WRPC during the period.

“Also, the unavailability of some of the major secondary units in the PHRC in July 2017 accounted for the non-production of some light end products with the corresponding increase in operational expenditure as a result of several maintenance interventions.”

Total crude processed by the three domestic refineries for July was put at 224,584 metric tonnes, which translates to a combined yield efficiency of 89.11 per cent compared to crude processed in June, which stood at 231,836MT, translating to a combined yield efficiency of 86.64 per cent, according to the report.

The refineries produced 160,642MT of finished petroleum products out of 224,584MT of crude processed at a combined capacity utilisation of 11.94 per cent compared to 12.73 per cent combined capacity utilisation achieved in June.

“The deprived operational performance is attributed to the WRPC and the PHRC downtime during the month under review. The ongoing revamping of the refineries will enhance capacity utilisation once completed,” the NNPC said.

The corporation said it had been adopting a merchant plant refineries business model since January 2017, taking cognisance of the products’ worth and crude costs.

It said the combined value of output by the three refineries (at import parity price) for July amounted to N24.83bn while the associated crude plus freight costs and operational expenses were N24.13bn and N9.21bn, respectively.

“This resulted in an operating deficit of N8.52bn by the refineries. Also, during the period under review, refineries combined capacity utilisation was 11.94 per cent with the PHRC, recording the highest capacity utilisation of 24.18 per cent,” the NNPC said.

It said the petroleum products (the Premium Motor Spirit and the Dual Purpose Kerosene only) produced by the domestic refineries in July amounted to 80.18 million litres, compared to 186.26 million litres in June.

The corporation said its operating revenue for June and July was N295.75bn and N269.30bn, respectively, representing 79.54 per cent and 73.23 per cent of the monthly budget.

Similarly, operating expenditures for the same periods were N300.98bn and N281.18bn, respectively, which also represented 94.74 per cent and 88.52 per cent of budget for June and July, respectively.

According to the report, other drags to the month’s performance include shutdown of Trans Niger Pipeline and production shut-in to Que Iboe Terminal and Bonga Terminal.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Goldman Sachs Urges Bold Rate Hike as Naira Weakens and Inflation Soars

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Central Bank of Nigeria (CBN)

As Nigeria grapples with soaring inflation and a faltering naira, Goldman Sachs is calling for a substantial increase in interest rates to stabilize the economy and restore investor confidence.

The global investment bank’s recommendation comes ahead of the Central Bank of Nigeria’s (CBN) key monetary policy decision, set to be announced on Tuesday.

Goldman Sachs economists, including Andrew Matheny, argue that incremental rate adjustments will not be sufficient to address the country’s deepening economic challenges.

“Another 50 or 100 basis points is certainly not going to move the needle in the eyes of an investor,” Matheny stated. “Nigeria needs a bold, decisive move to curb inflation and regain investor trust.”

The CBN, under the leadership of Governor Olayemi Cardoso, is anticipated to raise interest rates by 75 basis points to 27% in its upcoming meeting.

This would mark a continuation of the aggressive tightening campaign that began in May 2022, which has seen rates increase by 14.75 percentage points.

Despite this, inflation has remained stubbornly high, highlighting the need for more substantial measures.

The current economic landscape is marked by severe challenges. The naira’s depreciation has led to higher import costs, fueling inflation and eroding consumer purchasing power.

The CBN has attempted to ease the currency’s scarcity by selling dollars to local foreign exchange bureaus, but these efforts have yet to stabilize the naira significantly.

“Developments since the last meeting have definitely been hawkish,” noted Matheny. “The naira has weakened further, exacerbating inflationary pressures. The CBN’s policy needs to reflect this reality more aggressively.”

In response to the persistent inflation and naira weakness, analysts are urging the central bank to implement a more coherent strategy to manage the currency and inflation.

James Marshall of Promeritum Investment Management LLP suggested that the CBN should actively participate in the foreign exchange market to mitigate the naira’s volatility and restore market confidence.

“The central bank needs to be a more consistent and active participant in the forex market,” Marshall said. “A clear strategy to address the naira’s weakness is crucial for stabilizing the economy.”

The CBN’s decision will come as the country faces a critical period. With inflation expected to slow due to favorable comparisons with the previous year and new measures to reduce food costs, including a temporary import duty waiver on wheat and corn, there is hope that the economic situation may improve.

However, analysts anticipate that the CBN will need to implement one final rate hike to solidify inflation’s slowdown and restore positive real rates.

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Currency Drop Spurs Discount Dilemma in Cairo’s Markets

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Egyptian pound

Under Cairo’s scorching sun, the bustling streets reveal an unexpected twist in dramatic price drops on big-ticket items like cars and appliances.

Following March’s significant currency devaluation, prices for these goods have plunged, leaving consumers hesitant to make purchases amid hopes for even better deals.

Mohamed Yassin, a furniture store vendor, said “People just inquire about prices. They’re afraid to buy in case prices drop further.” This cautious consumer behavior is posing challenges for Egypt’s consumer-driven economy.

In March, Egyptian authorities devalued the pound by nearly 40% to stabilize an economy teetering on the edge. While such moves often lead to inflation spikes, Egypt’s case has been unusual.

Unlike other nations like Nigeria or Argentina, where costs soared post-devaluation, Egypt is witnessing falling prices for high-value items.

Previously inflated prices were driven by a black market in foreign currency, where importers secured dollars at exorbitant rates, passing costs onto consumers.

Now, with the pound stabilizing and foreign currency more accessible, retailers are struggling to sell inventory at pre-devaluation prices.

Despite price reductions, the overall consumer market remains sluggish. The automotive sector has seen a near 75% drop in sales compared to pre-crisis levels.

Major brands like Hyundai and Volkswagen have slashed prices by about a quarter, yet buyers remain cautious.

The economic strain is not limited to luxury items. Everyday expenses continue to rise, albeit more slowly, with anticipated hikes in electricity and fuel prices adding to the pressure.

Experts highlight a period of adjustment as both consumers and traders navigate the volatile exchange-rate environment. Mohamed Abu Basha, head of research at EFG Hermes, explains, “The market is taking time to absorb recent fluctuations.”

Meanwhile, businesses face declining sales, impacting their ability to manage operating costs. Yassin’s store has offered discounts of up to 50% yet remains quiet. “We’ve tried everything, but everyone is waiting,” he laments.

The devaluation has spurred a shift in economic dynamics. Inflation has eased, but the pace varies across sectors. Clothing and transportation costs are up, while food prices fluctuate.

With the phasing out of fuel subsidies and potential electricity price increases, Egyptians are bracing for further financial strain. The recent 300% rise in subsidized bread prices adds another layer of concern.

The situation underscores the balancing act between maintaining consumer confidence and attracting foreign investment.

Economists suggest potential stimulus measures, such as lowering interest rates or increasing public spending, to boost demand.

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Economy

MPC Meeting on July 22-23 to Tackle Inflation as Rates Set to Rise Again

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Interbank rate

The Monetary Policy Committee (MPC) is set to convene on July 22-23, 2024, amid soaring inflation and economic challenges in Nigeria.

Led by Olayemi Cardoso, the committee has already increased interest rates three times this year, raising them by 750 basis points to 26.25 percent.

Nigeria’s annual inflation rate climbed to 34.19 percent in June, driven by rising food prices. Despite these pressures, the Central Bank of Nigeria (CBN) projects that inflation will moderate to around 21.40 percent by year-end.

Market analysts expect a further rate hike as the committee seeks to rein in inflation. Nabila Mohammed from Chapel Hill Denham anticipates a 50–75 basis point increase.

Similarly, Coronation Research forecasts a potential rise of 50 to 100 basis points, given the recent uptick in inflation.

The food inflation rate reached 40.87 percent in June, exacerbated by security issues in key agricultural regions.

Essential commodities such as millet, garri, and yams have seen significant price hikes, impacting household budgets and savings.

As the MPC meets, the National Bureau of Statistics is set to release data on selected food prices for June, providing further insights into the inflationary trends affecting Nigerians.

The upcoming MPC meeting will be crucial in determining the trajectory of Nigeria’s monetary policy as the government grapples with economic instability.

The focus remains on balancing inflation control with economic growth to ensure stability in Africa’s largest economy.

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