Petroleum products demand struggles to recover

by Manasi Swamy

Consumption of petroleum products stood at 15.4 million tonnes in September 2020. This was higher than the 14.4 million tonnes of petroleum products consumed in the preceding month. The year-on-year fall in consumption too, at 4.5 per cent, was the lowest since March 2020. Prima facie, this looks like an improvement in demand for petroleum products. But, the point in fact is that September 2020 benefitted from the lower base of August 2020 and September 2019.

In August 2020, petroleum consumption had suffered a month-on-month fall of 7.5 per cent. And, it recovered from this fall only partially in September. Petroleum consumption had begun its recovery well in May from the Covid-19 lockdown shock of April. From a decadal low of 9.4 million tonnes in April, consumption had risen to 15.4 million tonnes in May and further to 16.1 million tonnes in June following relaxations in the restrictions by the government. But, the recovery could not be sustained. Consumption fell once again to 15.6 million tonnes in July and declined further to 14.4 million tonnes in August. Despite an improvement in September, petroleum consumption could not return to its levels attained in June and July.

In fact, if we smoothen out the monthly deviations, petroleum consumption shows a sustained downward level shift post the April recovery. Average monthly consumption of petroleum products during May-September 2020 was 15.4 million tonnes. This is 13.5 per cent lower than the average monthly consumption of 17.8 million tonnes recorded in 2019-20. The steep level shift in consumption after four months into the official unlock process suggests that the petroleum sector is still not out of the woods. The reduction in its y-o-y contraction to 4.5 per cent in September 2020 was merely a low base-effect. Petroleum consumption was exceptionally low at 16.2 million tonnes in September 2019, as compared to an average of 18.3 million tonnes in the nine months prior to it and also in the five months following it.

Due to weak demand for fuels oil refineries have been operating at under-capacity. IOCL’s nine refineries ran at 70-75 per cent rate in September. BPCL operated at a combined run rate of 80 per cent at its Kochi and Mumbai refineries. Mangalore Refinery and Petrochemicals operated its refinery at around 60-70 per cent run rate in September.

Consumption of liquefied petroleum gas (LPG), being a domestic fuel was unaffected by the lockdown. It fluctuated in the range of 2 to 2.3 million tonnes during April-September 2020 and marked a healthy 5.9 per cent growth over consumption during the same period a year ago.

Among industrial fuels, consumption of petroleum coke bounced back smartly from 0.8 million tonnes in April to 2.5 million tonnes in May. But, it could not sustain the recovery as both steel and cement plants, the main consumers of the fuel operated at lower capacity. Demand for furnace oil, on the other hand, recovered quite well. Its consumption averaged at 0.5 million per month between May and September 2020, nearly the same as the average monthly consumption of 0.51 million tonnes seen in the fiscal year 2019-20.

Petrol consumption, after falling to less than a million tonnes in April, improved to 1.8 million tonnes in May. It has been crawling up since. In September, 2.5 million tonnes of petrol was consumed in India, which was almost the same as the pre-pandemic monthly average of 2019-20.

Demand for aviation turbine fuel (ATF) also rose steadily from 55,000 tonnes in April 2020 to 314,000 tonnes in September. Despite this improvement, the September 2020 consumption of ATF was less-than-half the average monthly consumption of 667,000 tonnes in 2019-20. The weak demand for ATF can be attributed to continued restrictions from the government and unwillingness of people to travel on the backdrop of rising Covid-19 infections.

The main laggard in the recovery for petroleum products consumption was diesel, demand for which has been depressed due to restrictions on public transport and people’s preference for personal mobility over public transport because of rising Covid-19 infections. The absence of school buses on the road has also contributed to the weakness in demand. Moreover, mobility of light commercial vehicles (LCVs), which are used for the last mile transport, has been constrained by the localised lockdowns being announced to arrest the spread of Covid-19 infections. Some of cargo transport has shifted to railways because of Indian Railways’ improved efficiency during the pandemic and scarcity of truck drivers.

Diesel consumption dropped from an average 6.9 million tonnes per month in 2019-20 to 3.3 million tonnes in April 2020. It improved to 5.5 million tonnes in May and 6.3 million tonnes in June and then fell to 5.5 million tonnes in July and 4.8 million tonnes in August, before improving to 5.5 million tonnes in September. Average monthly consumption of diesel post the April shock i.e. during May-September 2020 was 5.5 million tonnes, nearly 20 per cent lower than the 2019-20 monthly average of 6.9 million tonnes.

As per media reports, diesel sales by India’s top three oil retailers rose year-on-year to 2.7 million tonnes during 1-15 October 2020. Volumes were 24 per cent higher than during the first half of September 2020. The rebound seems to be on account of increased transport of goods to meet the ensuing festival demand, and harvesting and transportation of kharif crop to mandis. This demand pick-up sustaining beyond November is crucial for the petroleum products industry and also for the Indian economy as a whole.

References
1. https://economicoutlook.cmie.com/kommon/bin/sr.php?kall=wshreport&tabcode=001071017000000000&repnum=22674&frequency=M&colno=1
CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
6.6 0.0
Consumer Sentiments Index
Base September-December 2015
51.8 -0.3
Consumer Expectations Index
Base September-December 2015
53.6 -0.6
Current Economic Conditions Index
Base September-December 2015
48.9 0.0
Quarterly CapEx Aggregates
(Rs.trillion) Dec 19 Mar 20 Jun 20 Sep 20
New projects 5.55 3.97 0.78 0.76
Completed projects 1.66 1.78 0.25 0.69
Stalled projects 0.61 0.73 0.11 0.08
Revived projects 0.83 0.42 0.68 0.34
Implementation stalled projects 0.13 10.02 0.09 0.03
Updated on: 01 Dec 2020 9:28AM
Quarterly Financials of Listed Companies
(% change) Dec 19 Mar 20 Jun 20 Sep 20
All listed Companies
 Income -1.7 -5.0 -27.6 -6.2
 Expenses -2.2 -1.9 -27.9 -10.1
 Net profit -10.9 -48.2 -40.2 45.3
 PAT margin (%) 5.1 2.4 5.3 8.3
 Count of Cos. 4,459 4,315 4,300 4,198
Non-financial Companies
 Income -5.5 -9.0 -37.4 -10.3
 Expenses -6.4 -5.0 -37.6 -14.0
 Net profit -13.9 -49.4 -55.7 30.0
 PAT margin (%) 5.7 3.3 4.5 8.1
 Net fixed assets 13.3 6.0
 Current assets 3.0 0.7
 Current liabilities 5.7 -2.9
 Borrowings 15.7 8.1
 Reserves & surplus 1.5 4.5
 Count of Cos. 3,312 3,229 3,221 3,160
Numbers are net of P&E
Updated on: 01 Dec 2020 9:28AM
Annual Financials of All Companies
(% change) FY18 FY19 FY20
All Companies
 Income 8.4 13.4 0.3
 Expenses 9.9 13.7 0.9
 Net profit -40.5 21.9 -18.3
 PAT margin (%) 2.0 2.3 4.2
 Assets 10.9 9.5 9.3
 Net worth 7.5 8.6 4.8
 RONW (%) 3.5 4.2 6.0
 Count of Cos. 28,425 27,638 6,888
Non-financial Companies
 Income 8.7 13.9 -2.8
 Expenses 8.8 14.1 -1.7
 Net profit -9.1 23.0 -27.7
 PAT margin (%) 2.7 3.1 4.4
 Net fixed assets 7.2 5.5 13.2
 Net worth 6.1 8.4 1.7
 RONW (%) 5.6 6.8 7.5
 Debt / Equity (times) 1.0 1.0 0.8
 Interest cover (times) 2.1 2.4 2.8
 Net working capital cycle (days) 77 70 57
 Count of Cos. 23,077 22,402 5,084
Numbers are net of P&E
Updated on: 28 Nov 2020 11:22AM