Fitch Solutions has revised downward its forecast for fuel demand contraction in India to 11.5 per cent in 2020 in line with further deterioration in the country’s economic outlook.
Its economists forecast India’s real GDP to contract by 8.6 per cent in the fiscal year 2020-21 (April 2020 to March 2021), down from -4.5 per cent previously.
“Demand weakness is spread across the board, with both consumer and industrial fuels set for the steep decline,” Fitch Solutions said in a note. “We have made a further downward revision to our India refined fuels demand forecast for 2020, from -9.4 per cent to -11.5 per cent, in line with further deterioration in the country’s economic outlook.”
With a nationwide lockdown in place over March to May, domestic demand plummeted, reaching its nadir in April at 48.7 per cent year-on-year contraction for total fuel consumption. As the lockdown was rolled back, demand began showing some signs of life, contracting by just 8.6 per cent in June.
However, state-level restrictions, persistent disruption to economic activity and continued and aggressive spread of the virus dragged the demand lower once again, with 20.6 per cent contraction in August.
The transport sectors have suffered the heaviest losses, as social distancing measures cut off traffic and travel and curbed demand for road, air and shipping freight.
In percentage terms, jet fuel has seen the sharpest contraction, with consumption falling on average by 46.6 per cent in the eight months to August, it said adding at its April low, the demand contracted by 91.4 per cent y-o-y, due to a total ban on flights, excluding those for essential cargo movement, such as medicines.
Gasoline (petrol) demand fell by an average of 16.1 per cent in the year to date (with a low of 60.4 per cent) and diesel demand (which is widely used in the transport, industrial and power sectors) was down by 25 per cent, with a low of 55.5 per cent.
“Industrial demand as a whole has declined sharply, due to restrictions in place on business activities, labour and supply shortages and credit constraints,” Fitch said. The one bright spot was LPG, demand for which rose by 4.3 per cent in the YTD.