New Delhi/Mumbai: India’s demand for diesel will remain subdued until the second half of 2020 when analysts expect various policy measures aimed at stimulating industrial activity to kick in and soak up excess fuel.
Until consumption picks up in Asia’s third-largest economy, where economic growth has slowed to six-year lows, refiners are likely to extend their recent stretch of rare diesel exports, which have weighed on refining margins in the region.
Diesel accounts for about two-fifths of refined fuel demand in the country, which has grown by its slowest pace since fiscal year 2014 this year amid tight credit markets, contracting auto sales and slowing rail and air traffic.
Diesel exports could climb by up to 8 million tonnes in the 2019-20 fiscal year from the 28 million tonnes shipped the year before, said an executive at a state refiner who could not be named due to company policy.
Ship-tracking data compiled by Refinitiv show India’s diesel exports since the fiscal year starting in April have jumped 8.9 percent from the same period in 2018 to 17.7 million tonnes, the highest for that time since at least 2015.
India consumed 83.5 million tonnes of diesel in the fiscal year 2018-19, Ministry of Petroleum and Natural Gas data show, which was a record and 3 percent above the prior year’s total.
But demand growth in 2019-20 could be “flat or 1 percent”, according to K Ravichandran, group head for corporate sector ratings at ICRA Ltd, a local of an arm of Moody’s.
Bhanu Patni, oil and gas analyst at Fitch unit Indian Ratings, said diesel consumption would continue to contract for the next several months.
“Diesel consumption will not improve before the first half of 2020,” she said.
The government announced cuts to corporate tax rates in September to help boost manufacturing and private investment, while the central bank also cut interest rates to spur economic activity. Still, the steps have yet to increase demand.
The government has not released factory output data for October. Still, a 7.4 percent decline in the month’s diesel consumption – the lowest in three years – suggests the country’s industrial engine continues to sputter.