India’s exports of Jet Fuel/Kerosene to be hit with anticipation of a rise in the country’s demand in 2020
The IEA in its latest OMR report projected a 7% growth in India’s jet fuel demand in 2020, in view of wider economic growth. After plummeting to less than 5% in 3Q19, the country’s GDP is expected to grow 6% this year owing to government corporate tax cuts, coupled with a plan to sell low-performing and loss-making state-owned companies such as Air India where the government has a 100% stake. This disinvestment strategy is expected to generate revenue of about $14 billion by 1H20 which together with the summer holiday season in the country, will boost frequent air travel and ultimately lead to a surge in demand for jet fuel.
India’s jet fuel demand grew at a CAGR of 38% during 2014-18. But the aviation industry suffered a massive setback when one of the biggest and oldest private airlines of the country – Jet Airways – shut its operations in April 2019, grounding more than 100 airplanes. According to the data from Petroleum Planning and Analysis Cell (PPAC) of the Ministry of Petroleum and Natural Gas jet fuel demand dropped from 715,000 tonnes per month in March to 645,000 tonnes per month in April 2019. However, new government policies are bearing fruit with 8.4% more fuel consumed in 4Q19 than in 3Q19. The International Air Transport Association (IATA) in its recent publication also reported India’s domestic Revenue Passenger Kilometers (RPKs) up 11.3% in November 2019, from 4.2% in October 2019, suggesting a surge in air traffic.
Jet fuel production in India has grown at a CAGR of 7.3% and its exports by 6.3% during the last five years according to data from PPAC. India exports jet fuel mostly to European and North American countries supporting long-haul seaborne trade. While export volumes are high, India imports very low volumes of jet fuel, mainly from Southeast and Northeast Asian nations – Singapore, Malaysia, South Korea and China – underpinning short-haul inter-Asia trade. However, India’s jet fuel exports declined 4.6% in 2019 supported by less production and a huge 70% fall in imports. Nevertheless, we expect the above trend to be reversed as Drewry is optimistic about the country’s economic growth which in turn will increase the purchasing power of individuals. Domestic travel is therefore set to rise and low-cost air carriers will boost air traffic growth and jet fuel demand. The expected surge in domestic demand is likely to squeeze the country’s jet fuel exports by around 5% in 2020, notwithstanding the likely bounce back in imports to close to last four years’ annual average of 300,000 tonnes.