The increase in exports of Chinese petroleum products by 53% in January-March is likely to topple the profitability cart of Indian private refiners if the trend continues over the next couple of quarters, experts said. According to monthly data available on Bloomberg, China has increased exports of petroleum products to 4.67 mln tonnes in the month of March compared with 3.05 mln tonne in January. The exports are likely to increase as the tea-pot refiners or private refiners in China have increased their production in last six months in the local market severely impacting the prices of petroleum products in China.
“The increased production in local market will force Chinese state run refiners to export to the global markets where the margins are very attractive, in turn affecting the exports from Indian refiners,” Sumit Pokharna, senior vice president research at Kotak Securities said. “At present, the exporters are making a margin of 11-12% in the US, Central Asia and South East Asia markets, which is further attracting these refiners to export. Indian refiners on the other hand are challenged by higher inventory losses due to drop in crude prices and appreciation in Indian currency,” Pokharna added.
State-owned China National Petroleum Corporation (CNPC) recently said China’s total refining capacity is estimated to increase 4.6% to 790 mln tonnes in 2017 and net crude oil imports are seen rising 5.3% to 396 mln tonnes. Net exports of diesel is seen growing 55% to 22.41 mln tonnes in 2017. According to data with Petroleum Planning & Analysis Cell, India exported a total of 65.5 mln tonne of petroleum products in financial year 2016-17 (April-March). For the period between January and March, however export of petroleum products in comparison increased only 27% to 6.6 mln tonne.
“If Chinese exporters continue to increase their exports it is likely that they would eat into the profit of private sector players such as RIL and Essar in long term, but the PSUs portfolio comprises very little exports, hence they would not be hit hard. Besides, it needs to be seen if the markets for both the countries clash,” said a consultant with a foreign advisory firm.
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However, there are other experts who believe that Indian refined products are far superior to Chinese products and meet the high standards of US requirements, hence they are not comparable with products delivered from China. China mostly exports to Central Asia and Africa, while Indian products go to developed economies of the US, Europe and South East Asia.
“We also need to keep in mind that over the next three to four years if substantial capacity addition doesn’t happen in India, diesel and some other products may start getting imported. Hence, Indian refiners may be obliged to meet the local demand rather than export,” Deepak Mahurkar, partner and leader oil & gas industry practice at PwC said.