Calendar year (CY) 2023 witnessed healthy gross refining margins (GRMs) of domestic refiners with elevated product cracks, which coupled with discounted Russian crude supported profitability, ICRA SVP & Co-Group Head - Corporate Ratings Prashant Vasisht said. In an interview with businessline, he said that going forwards GRMs are likely to moderate, but will remain healthy. Excerpts:

What are the key highlights of 2023?

During CY2023, the GRMs remained healthy with elevated product cracks (largely diesel), which, coupled with an increase in the proportion of discounted Russian crude processed supported the profitability of domestic refiners. The government imposed a special additional excise duty on crude oil and certain refinery products (July 1, 2022), which pared the profitability of upstream companies and standalone refiners to some extent. Retail prices of auto fuels have not been revised since May 2022, which resulted in pressure on the marketing margins for oil marketing companies. ICRA expects the GRMs to moderate going forward, although these will continue to remain healthy.

What are the main things to look out for in 2024?

Industries such as consumer durables, packaging, e-commerce, automotive, etc. spark domestic demand for petrochemicals.ICRA expects this demand for polymers to witness a CAGR of 6-8 per cent in the medium to long term. Several capacities in Asia, mainly in China, were added amid a tepid demand scenario which has resulted in many of these products being directed to other markets like India. While India has also increased its capacities and more additions are in the pipeline, its import dependency continues. This situation is likely to continue in the near to medium term. Global demand for petrochemicals has been weak, amid inflationary pressures, which, coupled with an oversupply situation, has exerted pressure on the spreads, which are likely to witness headwinds in the near to medium term.

What are your thoughts on Indian oil and gas companies announcing net zero plans?

The oil companies have been planning to move towards ‘net zero targets’ by setting up large renewable and clean energy portfolios to reduce dependency on auto fuels to prepare themselves for the changing energy landscape. Several oil companies are investing in ethanol production plants, while at the same time turning petrol pumps into energy outlets that offer EV charging points and aid battery-swapping.

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