1. Near-term headwinds

Near-term headwinds

India's net diesel exports in Mar-17 reached five month highs, as a result of the ramp-up at recently commissioned refinery expansions and weak Q1 CY17 consumption (diesel demand fell 4% y-o-y).

By: | Updated: April 25, 2017 4:54 AM
India’s net diesel exports in Mar-17 reached five month highs, as a result of the ramp-up at recently commissioned refinery expansions and weak 1Q CY17 consumption. (Reuters)

India’s net diesel exports in Mar-17 reached five month highs, as a result of the ramp-up at recently commissioned refinery expansions and weak Q1 CY17 consumption (diesel demand fell 4% y-o-y). This export increase is despite both BPCL’s Mumbai and HMEL’s Bhatinda refineries being shut for a part of the month. While the former was shut for regular maintenance, the latter saw a shutdown prior to commissioning of a 25% capacity expansion.

Ramp-up at both IOCL Paradip and BPCL Kochi continues to be promising, with the refineries reaching ~95/90% utilisations. Next quarter could see: (i) secondary units at these refineries ramp-up fully and (ii) HMEL’s capacity expansion coming online. Thus, we expect India’s Q2 CY17 diesel net exports to be up ~90 kbpd (20%) y-o-y. This equals a large ~10% of Asia+Middle East diesel surplus and can be a headwind for regional diesel margins near term.

Post this ramp-up, we expect refining fundamentals to strengthen, with regional utilisations increasing ~65 bp p.a. in both CY17/18. Refining accounts for 40-55% of OMC Ebitda and robust margins (6-2-3-1 at US$10.5/bbl) should provide good EPS support.

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India’s net diesel exports at five-month highs

India’s net diesel exports in Mar-17 reached five month highs, as a result of the ramp-up at recently commissioned refinery expansions and weak 1Q CY17 consumption. This export increase is despite both BPCL’s Mumbai and HMEL’s Bhatinda refineries being shut for a part of the month. While the former was shut for regular maintenance, the latter saw a shutdown prior to 25% capacity expansion.

Near term headwinds but refining fundamentals robust

Ramp-up at IOCL Paradip and BPCL Kochi is promising, with both reaching 90-95% utilisation. We see India’s Q2CY17 diesel net exports up ~90 kbpd (20%) y-o-y. Post this ramp-up, we expect refining fundamentals to strengthen, with regional utilisations increasing ~65 bp p.a. in both CY17/18. Refining accounts for 40-55% of OMC Ebitda and robust margins (6-2-3-1 at $10.5/bbl) should provide good EPS support.

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