Margins of Indian refiners likely to be under pressure in 2024

Bengaluru, 23 November: Margins of Indian petrochemical companies like Reliance Industries, GAIL, and Indian Oil are likely to remain under pressure in the upcoming year.

According to brokerage firm Prabhudas Lilladher, Chinese plans to reduce dependence on oil imports coupled with low demand environment in Europe are expected to be the reasons behind such margin pressure.

“China, the world’s largest producer and consumer of petrochemicals has been adding new petrochemical capacities and improving its self-sufficiency.Thus, China has reduced its reliance on imports. Along with this, demand concerns too persist in Europe on the back of high inflation and interest rates. This has led to suppressed product margins,” the brokerage firm wrote in a report.

Meanwhile, Indian refiners have announced aggressive expansion plans. Reliance has announced expansion plans across its petrochemical value chain, which will come up by 2026. Indian Oil is planning to enhance its petrochemical capacity from 4.1 mmtpa to 15 mmtpa by FY30. Similarly, GAIL is also expanding its capacity by setting up new plants.

“Petro-chemical margins have been suppressed since the beginning of 2023 and we expect RIL, GAIL and IOCL’s petro-chemical margins to remain weak going into 2024 too, on the back of production capacities exceeding demand,” PrabhudasLilladher wrote in its report.

As Chinese and Indian petrochemical producers add capacity, it is likely to create a supply glut without matching demand globally.

With prediction of mild recession in the US and weak European economic health, demand for petrochemical products is not likely to improve in the next calendar year.

Against this backdrop, Indian refiners’ margins will continue to be under pressure in 2024.