Diesel sales fall first time in 9 months amidst economy slowdown

by Shahkar Abidi 12 Sep 2019

The impact of the slowdown in the automotive sector in general and commercial vehicles (CV) in particular has begun to reflect on diesel consumption in India. Demand for diesel fell by a shade over 1 percent to 6.12 million metric tons (MMT) in August, when compared to the same period last year. It's the first time in nine months that diesel consumption has seen a year-on-year decline.

Analysts attribute the decline primarily to the overall slump in the economy leading to lesser fleet of commercial vehicles (CV) on the roads. CVs, often referred to as 'barometer of the economy', contribute to the bulk of the total diesel sales in the country, followed by a small proportion of usage for irrigational  purposes and fishing boats, among others. A small contributor may also be the increasing preference for petrol-engined vehicles.  

The latest data available with the Society of  Indian Automobile Manufacturers (SIAM), the apex national body representing all major vehicle and engine manufacturers, reveals that the overall CV  segment  registered a decline of 19 percent during  the April-August 2019 period   as compared to the corresponding period last year. Further, within the sub-segments,  medium and heavy commercial vehicles (M&HCVs) declined by 28.98 percent and light commercial vehicles saw a de-growth of  12.70 percent during the same comparable period. During August 2019, the CV industry saw a 39 percent YoY fall, and the M&HCV segment fell 54 percent. 

Commenting on the development, K Ravichandran, senior VP and Group Head, Corporate Ratings, Icra Ltd said, " The decline in diesel is due to the overall slump in the economy. As there are no signs of any improvement in the economy yet , therefore  I believe the demand  will continue to remain subdued for next few months or it may even remain in negative".

As per the latest data available with the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry, overall fuel demand in the country grew by 2.8 percent at 17.04 MMT  during August 2019 as compared to August 2018. Sales of petrol were up by 8.9 percent during the comparable period at 2.57 MMT.  

As per the latest report released by ICICI Securities, India's  diesel consumption growth, which was up 4.2 percent YoY in CY18, 6.3 percent in January  and 3.1 percent in February , slowed down to 1.4 - 2.8 percent in the March-May 2019 period  and further slowed down to 1.4% YoY in June. However, demand grew back at  3.3% YoY in July,  the strongest in six months.