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The fall in consumption growth is attributed to 14% rise in retail diesel prices effected by India Government in Septemberm the first such hike in 15 months, according to Miswin Mahesh, analyst at Barclays. However au..

11 Dec 2012

NEW DELHI (Commodity Online): India’s diesel consumption growth rate has fallen to 7.2% to average 87000 barrels per day in September and October compared to 11% year-on-year growth in previous months at an average of 130 thousand barrels per day in previous months, according to Barclays Research.

The fall in consumption growth is attributed to 14% rise in retail diesel prices effected by India Government in Septemberm the first such hike in 15 months, according to Miswin Mahesh, analyst at Barclays. However automobile sector demand for diesel fuel continues to rise which is also reflected in the sale of diesel vehicles, neither has petrol consumption shown any growth. Then who is consuming less diesel in the country now?

“We believe this compression in the growth rate is due to changing industrial usage patterns rather than a switch in motorists’ consumption pattern. Gasoline consumption growth rates haven’t seen a reciprocal increase.
However, the pick-up in fuel oil consumption suggests that industrial users are beginning to show a preference for this over the hitherto heavily subsidised diesel. While fuel oil usage declined by 30 thousand b/d (down 16% y/y) in the Jan-Aug period until the diesel price hike, over September and October, the decline has normalised to 12 thousand b/d (down 8% y/y). Looking forward, we expect diesel consumption in the country to maintain its current pace, as it continues to be well supported by its core demand centres, agriculture and transportation. Industrial users, however, are likely to show an increasing preference for fuel oil, although the swing is fractional and fragile for now given that the relative price advantage isn’t significantly wide to warrant large scale substitution.

The diesel hike was effected to bring down budget deficit but it still remains 42% less expensive than petrol and diesel vehicles provide more fuel economy, the reason why more than half of the cars sold in India are now diesel.Traditionally, the government had kept the diesel prices lower than petrol to help low income rural consumers and most importantly the agriculture sector, Barclays report said.


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