November 30, 2011

November 30, 2011

Also Inside This Issue:

Indian Mobile Handset Makers Take Export Route

Indian Fertiliser Imports May Fall More On Weak Rupee

Manmade Fibre Cos Reel Under High Input Costs In July-Sep

...And Much More.

FX Loss, High Rates, Input Costs Hit Steel Cos

November 30, 2011

FX Losses, High Interest Rates, Input Costs Hit Steel Cos In Jul-Sep

I ndian steel companies’ July-September earnings have been disappointing. Aggregate quarterly net profit of companies in the steel

industry slumped 52% from a year ago to the lowest level in the last four quarters.

Among steel majors, Tata Steel Ltd, Steel Authority of India Ltd, JSW Steel Ltd, Bhushan Steel Ltd and Jindal Saw Ltd registered a

decline in net profit in July-September, while Jindal Stainless Steel Ltd suffered a loss.

We at PRU aggregated results of 177 steel companies that declared

results for the last five quarters. The companies include those in the

ferrous segment that make steel, ferro alloys, steel pipes and tubes,

sponge iron and pig iron. Casting and forging companies have been

taken into consideration as well. (refer Table 1)

The quarter was marked by rise in raw material costs, increased inter-

est outgo and huge foreign exchange losses. A large number of com-

panies that depend on imported coking coal, a key raw material, made

losses due to depreciation of rupee that made imports expensive.

Aggregate quarterly profit margin declined to 4.1% from 10% a year ago. Although operating profit fell 18% from a year ago, net profit

fall by a sharp 52% was because of high interest outgo during the quarter. Interest costs was up 26.5% compared with 6.1% growth in

corresponding period last year.

In a previous edition of InFocus, published on November 16, we reviewed earnings of Tata Steel, Steel Authority of India, JSW Steel

and Jindal Steel and Power. This edition focuses on Jindal Stainless Steel, Bhushan Steel and Jindal Saw.

Bhushan Steel

Bhushan Steel is one of the largest producers and exporters of value-added flat steel products in India and the largest manufacturer of

auto-grade cold rolled steel. The company is all set to become one of the largest steel producers, with hot rolled coils steel capacity ex-

panding to 4.7 million tonnes by October 2012 from current 2 million tonnes. It has manufacturing units in Shahidabad in Uttar

Pradesh, Khapoli in Maharashtra and Meramandali in Orissa.

The product portfolio includes cold rolled coils, galvanised and color-coated sheets, high-tensile steel trappings, hardened and tempered

steel strips and precision tubes. Revenue from flat products contributes to about 70% of total revenue.

In July-September, net sales rose 43.4% from a year ago to `2,465 crore driven by higher sales volumes of flat products. Sales volume

of flat and long products increased 41.7% and 3.8% to 466,748 tonnes and to 86,639 tonnes, respectively (refer Table 2). Realisation

from long products and flat products rose 19.9% and 3.3% from a year ago to `45,164 a tonne and `46,987 a tonne, respectively.

Earnings before interest depreciation, tax and amortisation, or operating profit, for the second quarter rose 47.4% from a year ago to

`721 crore mainly because of captive consumption of hot rolled coil (44% captive) and ―cost-effective measures,‖ the company said.

Bhushan Steel currently has 1.9 million tonnes of hot rolled coils manufacturing capacity, which has turned it into an integrated steel

producer from a mere converter of hot rolled coils into cold rolled coils. The cost of production of HRC is expected to be $500 a tonne

in 2011-12 (April-March) versus market price of $650-700 a tonne. In-house production, thereby, saves up to $150 a tonne on HRC.

Despite good operating performance, net profit for the quarter fell 20% from a year ago to `207 crore due to surge in interest cost, dep-

recation and forex loss of `108 crore.

Bhushan Steel has been allotted an iron ore mine in Orissa, with reserves of 70 million tonnes. This mine is expected to be operational

by 2013-14. The company has also been allotted a thermal coal mine at Patrapara in Orissa, which is expected to be operational in the

Table 1: Aggregate Financial Results (`crore)

Q2FY12 Q2FY11 Y-o-Y %

Net sales 50,058 43,398 15.3

Raw material cost 28,790 23,836 20.8

Operating profit 6873 8369 17.9

Net Profit 2083 4318 51.8

Interest Expense 2182 1725 26.5

November 30, 2011

next 2-3 years. Going forward, this is expected to boost the company’s margins.

We expect interest and depreciation costs to remain at elevated levels due to expansion in the Orissa unit. Capital expenditure for FY12

and FY13 is likely to be `2,650 crore for each year.

Jindal Saw

Jindal Saw, the flagship company of the O.P. Jindal group, is one of India’s largest producers of saw pipes, or sbmerged arc

welded pipes — widely used in the energy sector for transportation of oil and gas. The company’s product profile includes carbon

alloy, stainless steel seamless pipes and tubes having industrial application and ductile iron pipes used for water and waste water

transportation.

Revenue from saw pipes account for about 70% of the company’s total revenue. The company has an installed capacity of 1.65 million

tonnes situated at Kosi Kalan in Uttar Pradesh, and Nanakapaya in Gujarat.

Jindal Saw net sales for the second quarter rose 80.7% from a year ago to `1,445 crore backed by higher sales volumes of saw pipes

although realisations of saw pipes and ductile iron pipes fell 17.7% and 10.6% on a year-on-year basis, respectively. Saw pipe realisa-

tion during the quarter was `56,880 a tonne, while ductile iron pipe realisation was `42,890 a tonne.

Operating profit declined 33.06% from a year ago to `123 crore due to higher raw material cost. Raw material cost as percentage of net

sales for the quarter stood at a whopping 70% for the quarter. Net profit fell 44.1% from a year ago to `53 crore due to foreign ex-

change losses of `48 crore on foreign currency debt.

Allocation of iron ore mines in Rajasthan by March 2012 would make the company’s ductile iron pipe business in India fully backward

integrated that may help improve margins.

Ductile iron pipe plants at Mundra and Abu Dhabi with total capacity of 500,000 million tonnes a year is likely to boost revenues and

improve margins in future.

Jindal Stainless Steel

Jindal Stainless Steel is India’s top stainless steel-maker, accounting for about 35% of total market share. The other players are Mukand

Ltd and SAIL. The product range includes ferro alloys, stainless steel slabs and blooms, hot rolled coils, plates, cold rolled coils and

specialty products such as razor blade steel, precision strips and coin blanks.

The company has stainless steel manufacturing facilities at Hissar in Haryana and in Orissa, with a current installed capacity of 1.52

tonnes that will go up to 3.2 million tonnes after expansion of the Orissa unit in the next four years.

During the quarter, net sales of the company grew 5.6% from a year ago to `1,833 crore. Most of the steel products made by the com-

pany is used in infrastructure and industry sectors that have been hit hard by the economic downturn, and that could be the reason for

sluggish growth in the company’s net sales in July-September.

The company’s operating and net profit fell 79.7% and 251% from a year ago, respectively, due to foreign exchange losses and higher

outgo.

Table 2: Financial Results (` Crore)

Bhushan Steel Ltd Jindal Saw Ltd Jindal Stainless Ltd

Q2FY12 Q2FY11

YoY

(%) Q1FY11 Q1FY12

YoY

(%) Q1FY11 Q1FY12 YoY(%)

Net sales 2,465 1,719 43.4 1,445 800 80.54 1,833 1,736 5.6

Raw Material 1,015 968 4.9 1,002 677 47.8 1,228 1,145 7.3

Operating Profit 721 489.3 47.38 123 184 33.06 50.5 248.2 79.7

PBT 271.1 347 21.9 74.9 133.9 44.07 144.6 96.5 249.8

PAT 207 259 20.13 53.7 102.2 47.4 97.9 64.7 251.47

November 30, 2011

Uttam Galva

Uttam Galva Steels, one of the largest cold rolled steel and galvanised steel makers in western India, is in the business of procuring hot

rolled coil and processing it into cold rolled coil and further into generalised as well as colour coated coils.

Cold rolled sheets are used by the automotive sector, while galvanised steel is mainly used for construction purposes. The company has

installed capacity of 1 million tonne of cold rolled coil, 7,50,000 tonnes of galvanised steel and 90,000 tonnes of colour coated steel at

Khopoli in Maharashtra.

Galvanising is a process of coating steel with zinc to increase resistance against corrosion.

The company’s net sales remained flat during the quarter from a year ago driven by lower sales volume due to demand slowdown in the

automobile and construction industries.

The company registered a decline in net profit due to higher interest outgo.

ArcelorMittal is the second-largest stakeholder in the company with a 33.8% stake. ArcelorMittal is expected to partner with the com-

pany in setting up a 2-million-tonne hot rolled coil project at Redi near Goa.

Usha Martin

The company is India’s largest producer of steel wire rope with installed capacity of 700,000 tonnes It has an installed capacity of 1

million tonnes of steel billets and 900,000 tonnes of sponge iron at Jamshedpur, in Jharkhand. The company’s other facilities of wire

and wire ropes are located at Ranchi and Jamshedpur in Jharkhand, and Hoshiarpur in Punjab.

The company has presence in the entire value chain; from mining assets to captive power to iron and steel making facilities, steel roll-

ing facilities and a significant part of the total value-added products capacity of wire and wire ropes.

Wire and wire ropes contribute to about 58% of the company’s total revenue. About one-third of the consolidated production of wire

and wire ropes comes from its foreign manufacturing subsidiaries in Thailand, UK and Dubai. Other products include steel strand, steel

cord and bright bars, which are mainly used for packaging and cargo handling.

The company’s iron ore mine is located at Gua in Jharkhand, with estimated reserves of 80 million tonnes. The coal mine, on the other

hand, is located at Kajari, also in Jharkhand, with estimated reserves of 40 million tonnes.

Net sales of the company grew 7.29% from a year ago to `686.31 crore driven by higher realisation and increased sales volume of wire

ropes. Sales volume of wire ropes for the quarter stood at 19,200 tonnes, up 17.7% from a year ago (refer Table 3).

Average realisation for the second quarter rose 14.9% from a year ago to `64,810 per tonne. Iron ore and coal output from captive

mines were impacted due to heavy monsoon. During the quarter, the company’s iron ore output fell 23% from a year ago to 2.66 lakh

Table 3: Financial Results ( ` crore)

Uttam Galva Monnet Ispat Usha Martin

Q2FY12 Q2FY11 YoY

(%) Q1FY11 Q1FY12

YoY

(%) Q2FY12 Q2FY11 YoY(%)

Net sales 1,291 1,304 0.95 458.6 360.7 27.1 686.31 639.65 7.29

Raw Material 968 863 12.1 278.7 213.1 30.8 331.6 238.42 39.1

Operating Profit 110.9 108.7 2.08 119.5 104.7 14.1 0.25 125.54 100.2

PBT 26.4 35 23.84 95.8 81.9 17.05 103.32 49.95 306.85

PAT 17.8 23.14 22.95 76.9 65.6 17.29 71.8 32.5 320.92

November 30, 2011

tonnes. while coal output was 24,000 tonnes, down 42% from a year ago. This led to a 39% rise in raw material costs from a year ago.

Sponge iron output fell 22% from a year ago to 40,981 tonnes during the quarter because of lower output from captive mines.

Net profit of the company declined by a whopping 320% on the back of sharp increase in interest outgo, higher depreciation expendi-

ture and spike in power and fuel costs. Interest rate and power fuel cost went up 34.7% and 20.1%, respectively, compared with a year

ago.

The company plans to spend `1,200 crore over three years, including the current year, to strengthen its competitiveness by establishing

captive facilities through setting up of 1.2 million tonnes of pellet plant, coke oven facility of 400,000 tonnes, a 60-megawatt power

plant, direct reduced iron plant of 200,000 tonnes and iron ore beneficiation plant of 1 million tonne. All these facilities would be set up

at its existing facility at Jamshedpur.

Monnet Ispat And Energy

Monnet Ispat and Energy is the flagship company of the Monnet group. The company makes sponge iron, structural steel and ferro al-

loys at Raipur and Raigarh, both in Chhattisgarh. The company has a combined annual capacity of 860,000 tonnes of sponge iron,

300,000 tonnes of steel (basic and structural), 60,000 tonnes of ferro alloys. It is the second largest coal-based sponge iron maker in

India.

Net sale of the company grew strongly 27.1% from a year ago to `459 crore driven by higher realisation of sponge iron and structural

steel. Realisation from sponge iron and structural steel went up 30.8% and 43.7%, respectively, from a year ago to `21,002 a tonne and

`32,76 a tonne, respectively. The sponge iron volume went up 1.8% from year ago to 159,960 tonnes.

Raw material cost as a percentage of sales increased to 59.8% compared with 56.1% a year ago. Average iron ore cost increased 23.1%

compared from a year ago to `6,202 a tonne in July-September. Hence, EBITDA increased only 14.1% from a year ago to `119 crore,

while EBITDA margin contracted by 298 basis points from a year ago to 26.1% during the quarter.

Interest expenses declined 2.4% to `12 crore and other income decreased 11.2% to `7 crore from a year ago. Consequently, net profit

grew 17.3% on a year-on-year basis to `77 crore.

Monnet Ispat is moving up the value chain with the installation of 1.5 million tonnes of steel capacity, of which 750,000 tonnes is for

steel plate and the remaining for structural steel. Contribution of sponge iron to revenue is expected to decline to 37% in FY12 from

53% in FY10. The share of value-added products is expected to increase to 38% in FY12 from 19% in FY10 .

————————————————————-

November 30, 2011

Indian Mobile Handset Makers Take Export Route

G artner sees India mobile handset sales at 231 mln in 2012: Mobile handset sales in India, the world's second-biggest wireless

services market, are expected to grow an annual 8.5% and reach 231 million units in 2012, technology researcher Gartner said.

(Reuters, November 23)

PRU Analysis

India accounts for approximately 12% of global mobile handset sales and is one of the

fastest growing telecom markets in the world. Given the country’s vast size and po-

tential, a number of handset manufacturing companies have set shop in India.

Currently, global brands like Nokia and Samsung dominate the Indian market. Local

and Chinese brands come next.

Indian manufacturers include Micromax, Lava Mobiles, Maxx Mobiles and Karbonn

Mobiles. Other players include LG and Spice Mobility Ltd, Sony Ericsson and G'Five

Mobile, which is a consumer electronic company based in China.

Research agencies are divided over growth prospects of handset sales as telecom sub-

scriber additions have been contracting in India over the past six months.

While Gartner Inc has forecast an 8.5% growth in handset sales in India in 2012, statistics by International Data Corporation show that

handset sales have declined to 12-13 million units in April-June from average sales of 15 million units in previous quarters.

A key factor that is affecting sales of mobile handsets is the depreciating Indian rupee that has raised prices of cheap mobiles imported

from China.

Companies have taken to exports to beat the slowing domestic demand scenario. For instance, Spice Mobility gets half its revenues

from exports while 10% of sales of Karbonn Mobiles also comes from exports.

PRU View

With a number of companies taking to exports, we expect a large portion of revenues of mobile handset manufacturers to be in foreign

currency. Also, companies already exporting are likely to benefit from depreciation of the Indian rupee. Growth in the domestic market

is expected to be driven by smart phones, demand for which is growing at a robust pace.

Indian Fertiliser Imports May Fall More On Weak Rupee

I nternational Suppliers Slash Fertiliser Rates: Indian fertiliser industry that is facing rough weather due to depreciating rupee has

got some relief as some international suppliers have agreed to cut prices — by around 5%. (Business Standard, November 25)

PRU Analysis

Cut in prices of imported fertilisers by 5% will bring down their landed costs and keep farm-gate prices at current levels.

All complex fertlisers in the nitrogen phosphate and potassium category on an average will be cheaper by $25 a tonne. Di-ammonium

phosphate, the major phosphate fertiliser, will become cheaper by $35 a tonne.

Price cut by international suppliers led Indian Farmers Fertiliser Cooperative Ltd to announce it would not raise prices of these fertilis-

November 30, 2011

ers until the end of the current financial year, the newspaper report

said.

Currently, Indian companies import DAP and NKP complex fertlis-

ers at $677 and $617 per tonne, respectively. India has always de-

pended on imports to meet its requirement because of lack of raw

materials, complex subsidy polices and limited availability of do-

mestic natural gas (refer Table 4)

Potassic fertiliser, mainly muriate of potash, is entirely imported

because natural potash reserve in the country is nil. In case of DAP,

the country faces acute shortage of raw materials, phosphate rock

and phosphoric acid.

After decontrol of complex fertilisers in April last year, farm-gate price, or maximum retail price, has been market-driven as subsidy

gets calculated on the basis of nutrient content of the fertiliser rather than the price of the product. Retail price now moves in line with

the global market.

Sharp rise in global prices have led to increase in domestic retail prices in last one year. Maximum retail price of di-ammonium phos-

phate has risen 83% to `18,200 per tonne in October from a year ago. In the case of muriate of potash, prices rose more than two-fold

to `11,300 per tonne in October from the previous year.

Without the price cut in imported fertilisers, companies would have been forced to increase retail prices because of depreciation of ru-

pee that not only pushes up import cost but also adds to raw material cost.

PRU View

Fertiliser imports in April-June stood at 2.48 million tonnes, down 46% from last year. High international price seems have taken a toll

on imports. In April-June, average DAP price stood at $617.34, up about 30% from a year ago.

Manmade Fibre Industry Reels Under Cost Pressure In July-Sep

M anmade fibre manufacturing companies registered healthy revenue growth in July-September on the back of improved sales re-

alisation. On an aggregate level, quarterly net sales increased 25.1% from a year ago to `5,226 crore.

In July-September, manmade fibre prices rose an average 35% from a year ago driven by higher raw material costs. Prices of raw mate-

rials, including mono-ethylene glycol (MEG) and purified terapthelic acid (PTA), went up in line with crude oil prices that rose around

44% to $112.66 a barrel during the quarter.

MEG and PTA are derivatives of crude oil and follow its pricing trend.

The price of polyester staple fibre (PSF) for November stands at

`110.38 per kg, up 44% from a year ago. Price of viscose filament yarn

(VFY) rose around 26% this month from a year ago to `374 per kg. Of the 20 companies that declared results for July-September, four

major companies — Grasim Industries Ltd, JBF Industries Ltd, SRF

Ltd and Indo Rama Synthetics Ltd — account for about 80% of total

revenue of the sector.

Growth in sales, however, didn’t translate into healthy profits for the

industry due to 31.1% rise in raw material cost during the quarter com-

pared with a year ago. Operating profit and net profit registered fall of

4.3% and 10.5%, respectively, from a year ago (refer Table 5).

Table 4: Fertiliser Imports (million tonnes)

Year DAP MOP Total

2006-07 3.44 2.98 6.42

2007-08 4.42 2.82 7.24

2008-09 5.67 5.63 11.30

2009-10 5.28 5.28 10.56

2010-11 6.35 4.80 11.15

2011-12* N/A N/A 2.48

70

90

110

130

290

340

390

440

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar

-11

May

-11

Jul-

11

Sep

-11

No

v-1

1

Chart 1:Manmade Fiber Price Movement(̀ /kg)

VFY Mumbai Price PSF Mumbai Price

November 30, 2011

Of the four companies, JBF Industries recorded highest growth in

quarterly net sales of 36.3% from a year ago and Grasim Indus-

tries posted highest growth in net profit of 29%.

Grasim Industries posted healthy growth in both net sales and

profits for the quarter. We have taken into consideration results of

only the viscose staple fibre segment of the company.

The company’s net sales rose 29.7% from a year ago to `1,203

crore driven by higher sales volume as well as realisation (refer

Table 6).

Sales volumes of VSF for the quarter stood at 78,959 million tonnes, up 17% from a year ago. Average realisations rose 10.9%, in line

with improvement in prices.

Operating profit grew 18.8% from a year ago due to a more-than-proportionate rise in its operating expenses, especially raw material

and power and fuel expenses. Raw material expenditure as part of net sales stood at 50.4% compared with 44% in the corresponding

period a year ago.

However, net profit growth accelerated to 23.3% due to lower depreciation costs and slower growth in interest expenses.

JBF Industries’ net profit fell sharply despite robust net sales due to rise in raw material costs and high interest outgo. Quarterly net

sales of the company went up 36.3% from a year ago led by higher realisation of the polyester chips and partially-oriented yarn, or

POY. The company is the largest producer of chips and third largest producer of POY in India. POY is a form of yarn made directly

from polyester chips.

Domestic realisation during the quarter rose 25-30%, whereas realisation from the Dubai division registered a 40% rise compared with

a year ago. However, operating profit grew at only 5.47% due to steep increase in raw material cost. Raw material cost as percentage of

sales on consolidated basis stood at 77.5% compared with 70.8% in the same period last year.

Net profit declined by a whopping 80.26%. Interest cost for the quarter jumped 170.7% from year ago to `78.2 crore and was a key

factor that contributed to the slump in net profit.

PRU View

Manmade fibre industry is expected to face cost pressure in October-December as rupee’s continued weakness versus the dollar is ex-

pected to further push up raw material costs. Rupee depreciated 13.49% since beginning of September to hit `51.96 against the dollar

on November 28. However, softening crude oil price is likely to offset depreciation to some extent in future. Oil prices may ease further

because of economic worries in the US and Europe.

Table 5: Aggregate Results ( ` crore)

Q2FY12 Q2FY11 Y-o-Y

%

Net sales 5226.18 4178.28 25.1

Raw material cost 3284.16 2505.32 31.1

Operating profit 622 650 4.3

PBT 595.22 652.03 8.7

PAT 418 467 10.5

Table 6: Financial Results (` crore)

Grasim Industries JBF Industries

Q2FY12 Q2FY11 Y-o-Y % Q2FY12 Q2FY11 Y-o-Y %

Net sales 1,203 932.64 29 1,174 861 36.3

Raw material cost 606.3 414.55 46.3 904 610 48

Operating profit 290.4 263.8 10.1 110 104.4 5.4

PBT 459.8 370.4 24.1 13.48 64.10 78.9

PAT 344.8 279.6 23.3 8.32 42.14 80.2

November 30, 2011

Paper Industry Margins Red in Jul-Sep

I ndian paper and products industry registered a net loss in July-September -- the first time in at least past nine quarters. Aggregate net

loss margin of 40 listed paper companies stood at 3.1% against profit margin of 5.6% in the year-ago quarter.

Margins were pummeled by high raw material and interest costs despite quarterly net sales rising 12.2% from a year ago.

Price of pulp and paper in India remained firm throughout July-October. Prices of heavyweight coated and lightweight coated paper-

boards in the Kolkata market averaged 11.8% and 10.6% higher, respectively, from year ago. This is largely because of depreciation of

the Indian rupee versus the dollar.

In contrast to domestic prices, paper prices in international markets have been weak since August. Price of pulp, the main raw material

for production of paper, fell to an 18-month low in October. Price of Northern Bleached Softwood Kraft (USA) wood pulp was 1.7%

lower in October from the previous month as well as from a year ago. Fall in pulp prices has been attributed to weak demand from de-

veloped countries. However, depreciating rupee has eroded the benefit of fall in international pulp prices.

Newsprint

India is largely dependent on imports for meeting its newsprint needs. Data from the Directorate General of Commercial Intelligence

and Statistics show India imported 12.2 lakh tonnes of newsprint in 2010-11 (April-March). Domestic production was 9.6 lakh tonnes

during the year. Due to scarcity of waste paper, domestic paper mills need to rely heavily on imports.

International price of newsprint was firm in October at $624 a tonne, up 5.4% from a year ago. Newsprint price in India was `31,000 a

tonne, up 12.4% in October from a year ago, in line with firm international prices and a sharp depreciation of the Indian rupee.

Recycled Paper

A look at the recycled paper industry also shows a grim picture. Since mid-October, prices of old corrugated containers, mixed paper,

deinking grades and pulp substitutes have fallen to $50 per tonne, down $20 from previous, with further price declines expected in the

next several months.

Weak demand for finished product as well as scaling down or halting of imports by China -- a large importer globally -- is creating a

cascading effect on prices.

Paper Companies in India

Tamil Nadu Newsprint & Papers Ltd, JK Paper Ltd, West Coast Paper Mills Ltd and Ballarpur Industries Ltd are some of the large pa-

per companies listed on stock exchanges. Net profit margin of all these companies came under severe pressure in July-September .

ITC, the largest tobacco manufacturer and a well-diversified fast-moving consumer goods company in India, has a paperboards and

specialty papers division. Revenues from this unit of the company at `32,300 crore for FY2011 was the highest among paper manufac-

turers in India. However, impact of the paperboards and specialty papers unit on the company’s net profit margin cannot be gauged

because of unavailability of more financial details of this division.

PRU View

While international prices of pulp and paper are expected to remain weak, domestic prices are expected to remain firm. This is because

falling rupee will increase cost of pulp imports. Domestic paper companies’ bottom-lines may be hit further as they may not be able to

pass on higher cost of pulp import to consumers.

Also, demand for paper in India is expected to remain healthy given that per capita consumption of paper in the country is merely 9.2

kilogram compared with global average of 55 kg. Despite rapid growth of e-commerce, demand for paper is expected to come from

academic, retail and corporate segments in India.

November 30, 2011

Indian Refinery Output Falls 2.8% In October Vs Year Ago

I ndia’s petroleum refinery output in October fell 2.8% from a year ago, government data showed last week. Plant shutdowns for

maintenance led to the production drop – the first since November 2010.

It must be noted that government data don’t include output from Reliance Industries Ltd’s

5.8-lakh-barrel-a-day, export-orientated refinery at Jamnagar, in Gujarat. The data also

exclude output from Bharat Petroleum Corp Ltd’s recently commissioned 120,000-bpd

Bina refinery, in Madhya Pradesh.

(Bina refinery is currently operating at 80-90% capacity. While all its units are individu-

ally running at 100% capacity, overall capacity stood at 80-90% on integration.)

Units of Indian Oil Corp Ltd, Mangalore Refinery and Petrochemicals Ltd and Essar Oil

undertook maintenance in October. Refineries undertake maintenance each year for ex-

pansion and upgrading processes.

While output of petroleum products has contracted, demand for petroleum products in

October rose 4.5% from a year ago. Diesel sales that account for over 40% of total sales

have grown more than that of petrol because of higher demand from transport and power

sectors.

Data indicates that subsidised pricing of diesel has also led to its diversion for use in in-

dustries such as power sector as well as in generator sets, replacing other products like

fuel oil that are costlier. Statistics released by the petroleum ministry reveal that consump-

tion of light diesel oil and furnace oil has fallen on a year-on-year basis, which may indi-

cate replacement by diesel.

Compared with diesel, petrol prices have risen substantially since deregulation. It was

only last month that the ministry decided to review prices of petrol on a weekly basis.

In the fortnight ending December 14, petrol prices may fall `1-2. This is because of a fall

in global crude oil prices.

It must also be noted that Indian rupee has depreciated at a far faster pace than the fall in crude oil prices. A cut in petrol prices, against

the backdrop of weakening rupee and the prospect of imminent municipal and state assembly elections, raises the question whether

petrol prices are completely deregulated. There’s another reason for doubting whether petrol prices are truly deregulated or not — pe-

troleum companies still need to take government’s approval before raising petrol prices when they are free to decide price of aviation

turbine fuel, another petroleum product.

———————————————————————-

Consumption Of Petro Products in

October (in ‘000 tonnes)

LPG (Cooking Gas) 1,235

Petrol 1,252

Naphtha 1,026

Aviation Turbine Fuel 473

Kerosene 672

Diesel 5,352

Light Diesel Oil 33

Lubricants, Greases 181

Furnace Oil 729

Bitumen 301

Petroleum coke 415

Others 388

Total 12054

November 30, 2011

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