Pent up demand following clearer GST rates

As India sets to implement a large scale infrastructure projects this year, its oil product demand growth is seen at 190,000 barrels per day this year, more than double from 2017’s 93,000b/d, according to a Wood Mackenzie analyst said.

Aman Verma, Asia-Pacific research analyst Wood Mackenzie, sees the demand growth from:

• Higher commercial vehicle sales for the next six months as evidenced by 50% year-on-year growth in November 2017. Pent-up demand will emerge once Goods and Services Tax (GST) rates for new purchases are clearer.
• A normal monsoon in 2017 is set to boost agricultural output leading to higher diesel demand and rural spending.
• Implementation of infrastructure projects ahead of the 2019 general election and the start of election campaigning at the end of 2018.
• GST implementation. With no interstate taxes, the logistics sector will be more inclined towards a demand-based approach than a tax-based approach. As a result, freight tonnage demand will stimulate long-haul truck movements.

Last year, demand growth was at its slowest in the past three years mainly due to lower economic activity following demonetisation and delayed purchases due to the implementation of the GST.

With these economic hurdles cleared, India is set to contribute to 14% of the global demand growth in 2018. Diesel and LPG will be the two main drivers of demand growth this year, said Verma.

“We project diesel/gasoil demand to grow by 3.5% or 60,000 b/d year-on-year in 2018 compared with 50,000 b/d in 2017, aided by the following factors:

LPG demand growth will remain robust in 2018 at 5.4% or 40,000 b/d although it is lower than the 60,000 b/d growth achieved in 2017.

The number of new household LPG customers continued to surge, driven by a scheme, Ujjwala, to promote clean cooking fuel in rural areas. The government is on track to expand the network by 50 million users by 2019 after adding 32 million users since May 2016.

Consequently, kerosene demand for cooking declined in 2017 as the government gradually started removing subsidies, noted Verma.

The phenomenal growth in LPG usage has reduced India’s self-sufficiency of LPG to 50% from about 70% in 2013.

Higher imports could also mean an opportunity for US LPG to gain market share in India, traditionally dominated by Middle Eastern suppliers.

India’s total product demand is estimated at 4.88 million b/d, up from 4.68 million b/d in last year.

Production from local refineries is seen at 5.73 million b/d in 2018, up from 2017’s 5.28 million b/d.

Net imports will decrease to 0.97 million b/d this year from last year’s 1.25 million b/d. fii-news.com