Indian Refiners export diesel to China as Beijing recovers from Covid-19

Indian refiners have started exporting commodities like diesel, a large share of which is going to China, where economy is on a recovery path. This comes as fuel sales have dropped by more than half and product storage facilities are getting exhausted.

According to reports, the demand for diesel for the first half of April dropped 61 per cent compared to the same time last year in India. On the other hand, China is seeing a demand recovery in infrastructure and manufacturing sectors. Apart from China, countries, like South Korea and Japan, have also placed quotes for importing petroleum products from India amid lockdown.

“We are slowly filling up our inventory capacity in storage tanks across the country. While this is happening, in order to give our refineries some leverage to move some throughout up or keep it at least at what it is now, we are importing some quantity of diesel, Very Low Sulphur Fuel Oil (VLSFO) and naphtha, too, from coastal refineries,” said a persons close the development.

Industry experts indicate that such exports are likely to be from coastal refineries at Visakhapatnam, Paradip, Kochi and Mumbai. The western coast would be preferable.

According to a report by ICICI Securities, companies like Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) have cut throughput at their refineries by 10-40 per cent. Thus, OMCs throughput and sales volumes are set to decline in the first quarter of the current financial year.

Export will be of small quantities of four to five cargoes. “We are getting some reasonable quotes now in small quantities. Most of it is going to east Asia, as China on revival track.

There is an imbalance in China between the demand and what their production is because they stopped the production due to Covid-19. Now they are buying some products to balance the demand,” he added. Based on media reports, China’s top fuel producers are likely to raise throughput by around 10 per cent from the March level, as domestic demand is back on track.

On the other hand, the demand of diesel and petrol in India is only 40 per cent of what it was prior to the lockdown period. During the month of April last year, 7.323 million tonne (MT) was sold. Industry experts indicate the situation of lower demand is likely to continue for at least six more months.

“Diesel demand has declined to more than half of the normal level. In the last few days, things are improving. However, it will take at least a couple of months more for it to come out of negative. Moreover, product sales will be under pressure for at least six months,” said K Ravichandran, senior vice-president and group head, Corporate Ratings, ICRA.