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● On headline, Indian oil consumption grew 1.8% YoY in August,
after a weak 3.2% in July. This is, however, after fuel oil demand
(7-8% of total) fell 23% YoY in Aug (11% in July). Ex-FO, Indian
oil demand would have grown a respectable 4.3% YoY.
● MS/HSD retail prices had been up 32/15% year-to-August. Yet
MS/HSD demand continues to remain relatively strong—growing
4.5/6.4% YoY in August. While these are less than peak rates,
diesel demand growth is particularly interesting given the large
reduction in power shortages—which are at decade lows.
● While detailed data is not yet available, we see these as signs of
sustained ‘retail/transportation’ demand. Agricultural fuel demand
is also likely to be higher YoY given the strong monsoon in 2010.
The MS/HSD price difference will encourage switching. Large
power capacity may remain an overhang on industrial demand.
● Naphtha demand remains weak; down 2% YoY in August, with
some reduction in oil-based power generation. This, along with
the decline in FO demand (despite flat YoY gas availability) points
to weak industrial oil usage, we think. Should industrial oil demand
stabilise, we see risks of higher headline oil growth in India
India’s oil demand (ex fuel oil) growth respectable
Preliminary government data suggest Indian oil demand grew 1.8%
YoY in August, continuing weak 3.2% growth in July. These numbers,
however, were marked by a sharp (23% YoY) reduction in fuel oil
consumption (which fell 11-23% YoY May-July). Ex FO, Indian oil
demand would have grown a respectable 4.3% in August.
There are few numbers that may help explain the recent decline in FO.
We note that 80% of FO is consumed for industrial purposes (40-50%
for fertiliser production, we estimate). Other uses represent a small
part, and are therefore unlikely to lead the decline in FO consumption.
Total natural gas supplies are flat YoY. With the government
supplying gas to fertiliser plants on priority for some time now, we do
not see that as a driver of large declines as well. Weaker industrial FO
demand seems to be the most likely explanation.
MS/HSD demand undeterred by price increases
The government made gasoline prices market-driven in June last year
and retail prices have increased c.32% since (Rs15/litre by Augustend).
Despite this robust price increase, gasoline demand continued
to grow at c.5% in July/August, (though lower than the peak 11% rate
witnessed earlier).
In July/August, diesel demand grew 6% (6% in FY11) despite power
shortages falling to decade lows due to the huge power generation on
strong monsoon and large power capacity addition. With c.46 GW
additional power capacity expected to be installed by FY13 and
another 60 GW in FY14/15, power shortages can remain low for some
time. The calculation of shortages is based on demand by the SEBs,
and may be understated due to larger power cuts.
The pricing gap between MS and HSD has almost doubled since June
2010 (from Rs12/litre to Rs26/litre now) and a shift from gasoline to
diesel in transportation fuel is likely to happen, though the impact
should become material only over some time.
Naphtha demand was 2% lower YoY in August and flat YoY YTD
FY12 as liquid fuel-based power generation has fallen c.4% in the
same period. With IOC’s Panipat Naphtha cracker expected to
operate at higher rates, naphtha demand can improve.
Recent data seem to indicate continued retail/transportation demand
strength in the face of some industrial oil demand weakness. Should
industrial oil demand stabilise, we see risks of higher headline oil
growth in India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● On headline, Indian oil consumption grew 1.8% YoY in August,
after a weak 3.2% in July. This is, however, after fuel oil demand
(7-8% of total) fell 23% YoY in Aug (11% in July). Ex-FO, Indian
oil demand would have grown a respectable 4.3% YoY.
● MS/HSD retail prices had been up 32/15% year-to-August. Yet
MS/HSD demand continues to remain relatively strong—growing
4.5/6.4% YoY in August. While these are less than peak rates,
diesel demand growth is particularly interesting given the large
reduction in power shortages—which are at decade lows.
● While detailed data is not yet available, we see these as signs of
sustained ‘retail/transportation’ demand. Agricultural fuel demand
is also likely to be higher YoY given the strong monsoon in 2010.
The MS/HSD price difference will encourage switching. Large
power capacity may remain an overhang on industrial demand.
● Naphtha demand remains weak; down 2% YoY in August, with
some reduction in oil-based power generation. This, along with
the decline in FO demand (despite flat YoY gas availability) points
to weak industrial oil usage, we think. Should industrial oil demand
stabilise, we see risks of higher headline oil growth in India
India’s oil demand (ex fuel oil) growth respectable
Preliminary government data suggest Indian oil demand grew 1.8%
YoY in August, continuing weak 3.2% growth in July. These numbers,
however, were marked by a sharp (23% YoY) reduction in fuel oil
consumption (which fell 11-23% YoY May-July). Ex FO, Indian oil
demand would have grown a respectable 4.3% in August.
There are few numbers that may help explain the recent decline in FO.
We note that 80% of FO is consumed for industrial purposes (40-50%
for fertiliser production, we estimate). Other uses represent a small
part, and are therefore unlikely to lead the decline in FO consumption.
Total natural gas supplies are flat YoY. With the government
supplying gas to fertiliser plants on priority for some time now, we do
not see that as a driver of large declines as well. Weaker industrial FO
demand seems to be the most likely explanation.
MS/HSD demand undeterred by price increases
The government made gasoline prices market-driven in June last year
and retail prices have increased c.32% since (Rs15/litre by Augustend).
Despite this robust price increase, gasoline demand continued
to grow at c.5% in July/August, (though lower than the peak 11% rate
witnessed earlier).
In July/August, diesel demand grew 6% (6% in FY11) despite power
shortages falling to decade lows due to the huge power generation on
strong monsoon and large power capacity addition. With c.46 GW
additional power capacity expected to be installed by FY13 and
another 60 GW in FY14/15, power shortages can remain low for some
time. The calculation of shortages is based on demand by the SEBs,
and may be understated due to larger power cuts.
The pricing gap between MS and HSD has almost doubled since June
2010 (from Rs12/litre to Rs26/litre now) and a shift from gasoline to
diesel in transportation fuel is likely to happen, though the impact
should become material only over some time.
Naphtha demand was 2% lower YoY in August and flat YoY YTD
FY12 as liquid fuel-based power generation has fallen c.4% in the
same period. With IOC’s Panipat Naphtha cracker expected to
operate at higher rates, naphtha demand can improve.
Recent data seem to indicate continued retail/transportation demand
strength in the face of some industrial oil demand weakness. Should
industrial oil demand stabilise, we see risks of higher headline oil
growth in India.
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