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Analysis: India’s oil products demand growth may pick up after weak H1

India’s oil products demand in the second half of 2019 is likely to stage a modest recovery from H1 levels on expectations that clarity on government policies post the federal elections would help auto, manufacturing and agriculture sectors to recover.

A sharp slowdown in India’s auto demand on the back of a slowdown in economic growth has taken a toll on India’s oil demand, pulling down overall oil products consumption growth to 1% year on year in the first half of 2019.

“Going forward into the second half of this year, vehicle sales should recover as the economy improves, coupled with more certainty over new policies and tax rates after the elections,” S&P Global Platts Analytics said in a research note.

Platts Analytics expects that GDP growth will soon regain momentum, as the central bank had begun to loosen up the monetary policy by cutting interest rates. The government also has plans to improve the country’s infrastructure and stimulate the economy.

It expects oil demand to pick up, with a year-on-year growth of 235,000 b/d in H2 2019, taking the whole year average to 170,000 b/d in 2019, a 3.5% growth over 2018.

In the January-June period, demand for diesel, which accounts for the biggest share in the oil products basket, rose by only 2.8% year on year to 43.8 million mt from 42.6 million mt a year earlier. As a result, overall oil products demand grew marginally to 108 million mt from 107 million mt in the same year-ago period.

“Gasoil demand growth slowed sharply as motorists increasingly turned to gasoline vehicles, while demand from other sectors had been dampened by a slowing economy,” Platts Analytics said.

WEAK AUTO SALES
India’s auto sales witnessed robust growth over the past two years on the back of strong economic momentum, an infrastructure push by the government and a boom in the rural economy. However, the growth in passenger and commercial vehicles sales has been trending down since the beginning of 2019.

“There has been a major upward revision in insurance costs associated with the purchase of new vehicles. With the revision, new buyers are mandated to pay third-party insurance premiums upfront for the term of three years for cars and five years for two wheelers,” Facts Global Energy said in a research note.

But the outlook for the auto industry is expected to improve in H2.

India will make a nationwide switch from Euro-4 to Euro-6 fuel standards by April 2020.

“This will likely put pressure on automakers to clear their inventories of Euro 4 vehicles. We expect they will resort to giving heavy discounts, supporting a rebound in vehicle sales later this year. Also, pre-buying activities by consumers in anticipation of an escalation in vehicle costs post Euro 6 switch should offer additional support to vehicle sales,” FGE added.

In the first half of 2019, demand for naphtha fell nearly 4% year on year to 6.51 million mt from 6.77 million mt a year earlier, PPAC data showed. Naphtha demand was lower due to higher turnarounds of crackers as a result of weaker ethylene margins.

Demand for fuel oil also posted negative growth in the six-month period, falling 2.4% year on year to 3.15 million mt from 3.23 million mt a year earlier.

LPG demand grew by 5.3% year on year to 12.55 million mt in the January-June period compared with 11.92 million mt in the same period a year earlier.

“As expected, LPG demand growth stayed healthy as the government continues to push for the use of LPG as a cooking fuel across the country. However, LPG is expected to reach a saturation point, which will lead to lower growth in the coming years,” Platts Analytics said.
Source: Platts

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