Published on 14/09/2020 2:08:58 PM | Source: ICICI Securities Ltd

Oil and Gas Sector - Refiners cut throughput as demand recovery reverses & GRMs weaken By ICICI Securities

Posted in Broking Firm Views - Sector Report| #Oil and Gas Sector #Sector Report #ICICI Securities

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Refiners cut throughput as demand recovery reverses & GRMs weaken

As per petroleum ministry’s data for Jun’20 and the recent press reports, 1) excess of production over consumption is down from 6mmt in Apr’20 to 2.6mmt in May’20 and further to 2.4mmt in Jun’20; 2) product net exports are down sharply from 2.7mmt in Apr’20 to 0.8mmt in Jun’20 (2.3mmt in May’20); 3) diesel net exports are down from 3.4mmt in Apr’20 to 2mmt in Jun’20 (2.7mmt in May’20); 4) consumption recovery has reversed in case of auto fuels in general and diesel in particular in Jul’20; 5) refiners have cut utilisation rate in Jul’20 from levels in Jun’20 and maintenance shutdowns were also resorted to in Jul’20 and are planned in Aug’20 probably due to reversal of demand recovery, weak export markets and GRM. It, therefore, appears HPCL is likely to outperform peers on utilisation rate even in Q2FY21 like it did in Q1; we reiterate HPCL as our top pick among OMCs.

* Consumption recovery reversal in Jul’20: There are indications that the trend of secular recovery in auto fuel consumption from the lows in 1-15 Apr’20 has reversed in Jul’20 probably due to re-imposition of lockdowns in some cities. As per press reports, consumption decline was steeper at 21% YoY in Jul’20 vs 16% YoY from 16- 30 June for diesel and 11.5% YoY in Jul’20 vs 9% YoY from 16-30 June for petrol.

* Net product exports contracted further in Jun’20: India’s petroleum product consumption declined by 8.4mmt (46%) YoY in Apr’20 while production was down 5.1mmt (24%) YoY. Excess of production over consumption thus surged 3.3mmt (121%) YoY to 6mmt in Apr’20. Excess of production over consumption contracted from 6mmt in Apr’20 to 2.6mmt in May’20 and further to 2.4mmt on Jun’20. Net product exports surged 227% YoY to 2.7mmt in Apr’20. Net product exports contraction was modest from 2.7mmt in Apr’20 to 2.3mmt in May’20 but steep to just 0.8mmt in Jun’20. Net diesel exports dwindled from 3.4mmt in Apr’20 to 2.7mmt in May’20 and further to 2mmt in Jun’20. Utilisation of private export-oriented refineries declined to 82-84% in Jun’20 from 89-93% in Apr-May’20.

* Refiners cut utilisation rates & announced maintenance shutdowns in Jul’20: Refiners have reacted to reversal in demand recovery, slowdown in exports and further weakening of GRM, as crude discounts vanished in Jul’20, by cutting utilisation rates and resorting to maintenance shutdowns. As per press reports: 1) IOC operated its refineries at 80-85% capacity in Jul’20 vs 96% utilisation in Jun’20 and utilisation rate was down to 75% by end-Jul’20 from 93% at the beginning of the month; 2) IOC’s subsiduary Chennai Petroleum operated at just 50% utilisation in Jul’20 vs 66% in Jun’20; 3) IOC is taking maintenance shutdown from 25-Jul’20 to 15-Aug’20 at its 15mmtpa capacity Paradip refinery; 4) BPCL has cut down utilisation rate at its refineries to 70% in Jul’20 from 83% in Jun’20 and 5) BPCL had shutdown for maintenance for three weeks its 10mmtpa capacity distillation unit at Kochi refinery in Jul’20.


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