Mumbai: There is a sustained slowdown in the Indian economy if petroleum product demand figures are anything to go by. The consumption for petroleum products, except that of LPG, is on the downslide, as is evident from the data available for the first five months of the current fiscal.

While this could be a pointer towards a slowing economy, it could also be due to the fact that the demand for transport fuel such as petrol and diesel is usually low in the monsoon season, adversely affecting the consumption or a combination of both. Usually the month of August brings respite to refineries, which is the month when refineries operate at full capacity, fresh from their annual maintenance shutdowns between April and June.

However, no such thing has happened this time round and the demand in August, too, has remained slack. With demand down, stocks are overflowing, aggravating the already surplus supply situation in the system.

To cut down on inventories, some refineries like Indian Oil Corporation have resorted to distress exports without much luck. Industry sources pointed out that the demand could pick up post-monsoon, especially from the agriculture segment, on the back of good rains easing the strain on the supply side.

ASK-Raymond James and Associates CEO John Band feels that it is the slowdown factor that is responsible for the low offtake. Speaking to domain-B he said: Evidently, it is an indicator of a slowdown in the industrial economy. I don't see much hope at least for the next two quarters, especially after what happened to the US economy post-11 September. Band may be right because exports could become increasingly difficult, as demand from other countries would remain curtailed.

According to the latest figures made available by industry sources, diesel consumption between April and August 2001 declined 4.4 per cent to touch a low of 15.394 million metric tonne, in comparison to the 16.094 million metric tonne in the corresponding period.

Similarly, consumption of petroleum products other than diesel fell 0.9 per cent to touch 36.8 million metric tonne, in comparison to the 37.20 million metric tonne in the corresponding period last year. However, consumption of LPG grew 11.8 per cent at 2.841 million metric tonne, in comparison to the 2.542 million metric tonne in the corresponding period.

Figures for August too show a similar trend. Diesel consumption declined sharply by 5.2 per cent at 2.73 million metric tonne, in comparison to the 2.88 million metric tonne in the corresponding period. Similarly, consumption of petro products, other than diesel, at 6.997 million metric tonne fell 3.2 per cent in August 2001, in comparison to the 7.20 million metric tonne in August 2000.

From out-of-petroleum products, consumption of naphtha declined 7.7 per cent to touch 6.638 lakh tonne, in comparison to the 7.189 lakh tonne in August 2000, and kerosene declined 6.4 per cent to touch 8.426 lakh tonne. The corresponding periods figure was 9.002 lakh tonne. Similarly, consumption of lubes and greases fell 16 per cent to 56,000 tonne.

But petrol consumption rose 5.5 per cent to touch 5.885 lakh tonne in comparison to 5.58 lakh tonne in the corresponding period; aviation turbine sales was up 7.2 per cent at 86,900 tonne; and fuel oil 10.6 per cent at 6.08 lakh tonne. LPG consumption, too, increased 10.3 per cent at 6.068 lakh tonne, in comparison to the 5.501 lakh tonne in August 2000.

Consumption of LPG showed an uptrend largely because of the effect of clearing all waiting lists for LPG, analysts say.

In the meantime, margins of refinery companies have taken a big hit following the recent upsurge in global crude prices, which however have gone unrevised for Indian refinery companies. Indian oil markets are under the control of the government, which does not allow any revision in selling prices of products even if raw material price, essentially crude, goes up.

Addressing the Press on 25 September, Indian Oil Corporation MD M A Pathan said margins were down to about 30 cents a barrel this month in comparison to about $3 in the corresponding period last year. Margins stood higher at $2 per barrel in the first quarter ended June 2001. The fall in margins is largely due to fall in demand, coupled with lack of a compensatory rise in domestic product prices despite rise in international crude prices.

He said his company had suffered a loss of Rs 2,222 crore in fiscal 2001 as well due to the mismatch in high international crude prices and the unchanged domestic product prices.

What does Band feel about margins of refinery companies? Just privatise the sector and let the companies do their own buying and selling. Margins, and everything else, will be taken care off.