Supply Lines is a daily newsletter that tracks Covid-19’s impact on trade. Sign up here, and subscribe to our Covid-19 podcast for the latest news and analysis on the pandemic.
India’s oil-product demand is set to slump to a five-year low this financial year, with a bleak outlook for diesel consumption as the nation’s truck operators idle vehicles and consider cutting the size of their fleets.
About half of India’s trucks are parked up without work and the nation’s biggest operator is shunning new purchases and may downsize after demand crashed due to the pandemic. The workhorses of industry that haul goods all over the country are the biggest consumers of diesel, the most used transport fuel in India and a useful proxy for its economic health.
The drag on diesel along with the plunge in jet fuel demand is set to weigh on India’s rebound from the coronavirus. Overall oil-product consumption including transport fuels in the financial year through March 2021 will be around 90% of last year, according to oil refinery executives. That would be the lowest level since 2016.
Demand rebounded to about 70% to 80% of pre-virus levels after an initial nationwide lockdown was eased in June. It’s expected to climb to around 90% in the three months through March 2021, according to Hindustan Petroleum Corp. Refineries Director Vinod S Shenoy.
India’s truckers are facing multiples headwinds that are crimping diesel consumption and overall oil demand. Localised lockdowns after a flare-up in infections is slowing economic activity, while tax hikes on the industrial fuel over the past few years have eroded the transport companies’ profits.
“High diesel costs and forced lockdowns have indeed devastated the transport sector and the economy," said Naveen Kumar Gupta, secretary general of the All India Motors Transport Congress, which represents almost 10 million truckers. “There is a remote chance of its revival in the current financial year," he said, adding that about 50% of the country’s truck fleet is idle.
Gasoline will be the fuel that comes closest to making a complete recovery as people stick to driving their own cars to avoid crowded buses and trains, according to the refinery executives who asked not to be named because they’re not authorised to speak to the media.
The slowdown this year has decimated purchases of new trucks and buses, with sales by Tata Motors Ltd. through April to June at a 10th of what it sold in the same period last year. Sales by Ashok Leyland Ltd. and Mahindra & Mahindra Ltd. slumped more than 90% in the four months through July.
VRL Logistics Ltd. won’t be purchasing new vehicles and may scrap about 700 of its fleet of 5,000 trucks to rein in costs, Chief Financial Officer Sunil Nalavadi said earlier this month. The nation’s biggest trucker is current operating at about 75% capacity. More than a third of its customers are small- and medium-sized firms, which have been hit hardest by the economic slump.
“We expect that 2020 will be a lost year for earnings growth," VRL Chairman Vijay Sankeshwar said in the company’s annual report.
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.