Petroleum consumption grows 0.4% in June after growing 3-5% in April and May

Petroleum demand grew marginally by 0.4% yoy to 16.5 mn tons in June 2017, after growing 3-5% in April-May 2017 and 8% in pre-demonetization period during April-November 2016. We attribute the moderation to lower off-take of industrial fuels, such as pet coke and naphtha, given likely slowdown in manufacturing activities before implementation of GST from July 1.

- Auto fuels benefit from lower base. Auto fuels demand benefited from a lower base of June 2016—(1) diesel demand grew 6.5% yoy as compared to 1.5% in June 2016 and (2) gasoline demand grew 12% yoy over 4.4% growth in the previous year. Jet fuel demand remains strong growing at 9.2%, as compared to 10-11% in the recent months.

- Cooking fuels. LPG demand grew 16% yoy, reflecting increasing connections under the Pradhan Mantri Ujjwala Yojana scheme. This is also corroborated by continued sharp decline in kerosene consumption (-33% yoy), which has been further impacted by reduced quotas.

- Decline in off-take of industrial fuels. The off-take of industrial fuels reduced sharply in June with consumption of (1) petcoke declining 19% yoy, (2) fuel oil/ LSHS declining 13% yoy and (3) naphtha declining 4% yoy.

- Others. Lubricants and greases demand reduced by a sharp 24% yoy. Bitumen and other petroleum fuels consumption reduced by 5% yoy.

Growth remains subdued at 3% in 1QFY18, versus 8% pre-demonetization in FY2017

Petroleum consumption grew modestly by 3% yoy in 1QFY18 as compared to a robust 8% in pre-demonetization phase in 9MFY17, reflecting moderation in demand across all fuels; we note that 4QFY17 was an outlier with a decline of 3% yoy, impacted by economic slowdown post demonetization. We do not rule out a near-term slowdown due to transient impact on economy from implementation of GST.

- Transportation fuels. Auto fuels demand growth recovered in 1QFY18 from 4QFY17—(1) diesel demand grew by 58% yoy, higher than 3.8% growth in 9MFY17 and (2) gasoline demand grew 10.6% yoy, comparable to 11.3% in 9MFY17. Jet fuel demand remained strong, growing at 9.9% yoy as compared to 11.8% in 9MFY17.

- Cooking fuels. LPG demand grew 106% yoy in 1QFY18, in line with 9.8% for FY2017. Kerosene consumption sustained its weak trajectory declining sharply by 34.1% yoy.

- Industrial fuels. Fuel oil/LSHS demand declined by 7.7% yoy, as compared to 19.4% growth in 9MFY17. Petcoke consumption grew modestly by 1.1% yoy, sharply slower than 36% growth in 9MFY17. Naphtha demand declined by 3.4% yoy in 1QFY18.

- Others. Bitumen consumption declined sharply by 9.9% yoy, as compared to modest 1.1% growth in 9MFY17. Lubricants and greases also declined by 10.7% yoy versus marginal 0.2% growth in 9MFY17. Other petroleum fuels grew 2.1% yoy versus 2.7% in 9MFY17.

Source : Equity Bulls

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