India to continue prompt fuel exports for two more weeks

Indian refiners are likely to continue prompt export of refined fuels for at least another two weeks to avoid a complete shutdown after the coronavirus lockdown hit local demand, company officials said.

A three-week lockdown due to end in mid-April slashed state fuel retailers’ local diesel sales by about 26% and petrol by about 17% in March, provisional data shows.

Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp control about 90% of fuel pumps in India, where falling fuel consumption has deepened crude refining cuts by state refiners.

Some have declared force majeure on crude purchases as storage facilities are full.

India’s fuel consumption is expected to recover over the next 10-15 days as recent steps by the government, including movement of trucks to carry non-essential items will push up demand, R. Ramachandran, head of refineries at BPCL, said.

BPCL’s average crude processing has declined to 60%, from 90% reported on March 24, he said, adding: “In order to operate the refineries above the turndown levels and to balance the refinery runs and the inventory build up, it is essential for us to look at selective exports.” Indian state refiners rarely export gasoil and HPCL and Mangalore Refinery and Petrochemicals Ltd sporadically export gasoline.

In a rare move, the country’s top refiner IOC recently issued tenders to export more than 50,000 tonnes of gasoline and some reformate for April loading.

“It will be difficult to operate in this situation for too long... we may have to shut one or two refineries if demand doesn’t recover,” said Sanjiv Singh, chairman of Indian Oil Corp. Another company official said IOC’s 11 refineries are operating at about 50% capacity, compared to 70%-75% previously reported.

“It is better to shut the plant than operating below 30%-35% capacity... refinery is a critical plant,” the source, who did not wish to be identified, told Reuters.

Private refiner Nayara Energy, part-owned by Russian oil giant Rosneft, which usually exports naphtha and gasoline, has also offered reformate for April lifting.

MRPL has issued tenders to export 130,000 tonnes diesel and 25,000 tonnes of gasoline in April. “India’s April gasoil exports have accumulated to 900,000 tonnes, excluding the exports from Reliance. So, with those of Reliance combined, we expect April exports will be at a record high,” an Asian trader said.

MRPL has reduced its crude refining to 50% from a previously reported cut of 33%, its managing director M. Venkatesh said.

“We are trying our best not to export prompt cargoes, but for the next one to two weeks it will be like this,” he added.

Separately, ratings agency ICRA on Tuesday predicted that India’s economy is likely to witness a sharp contraction of 4.5 per cent during Q4 of FY2020 and is expected to gradually recover to post a GDP growth of just 2 per cent in FY2021.

ICRA has sharply cut its forecast for Indian GDP growth in FY 2021, post the Covid-19 outbreak.

“Amid uncertainty as to when the situation will normalize, we expect a sharp downturn in various indicators of the manufacturing and services sectors from March 2020 onwards,” said Shamsher Dewan, Vice President and Sector Head, Corporate Ratings, ICRA.

“This primarily includes the discretionary activities like travel, tourism and hospitality; labour intensive sectors like construction, transport and manufacturing of non-essential items; exports; and supporting sectors like electricity.” According to Dewan, the silver lining amid the grim scenario will be the expected healthy outlook for the rabi crop which would provide some support through improved rural demand. “Higher government spending would also cushion the extent of the slowdown to an extent,” he said.

The Covid-19 outbreak which started in China in December 2019 has morphed into a global pandemic, affecting 203 countries, over one million people and increasing rapidly - European countries, North America and Asia being severely impacted.

Outbreak of Covid-19 decelerated the growth of India’s service sector activity in March, an economic data point showed on Monday.

Accordingly, the IHS Markit India Services business Activity Index fell to 49.3 in March, down from February’s 85-month high of 57.5.

An index reading of above 50 indicates an overall increase in economic activity and below 50, an overall decrease.

“The global COVID-19 pandemic reportedly led to a fall in new orders from clients, particularly overseas. That said, the decrease in output was mild overall. March data were collected between March 12-27,” IHS Markit PMI report said.

Agencies