Jan 06: Refineries have hit a sweet spot because of the right juxtaposition of circumstances. Here are some of the reasons:
8Low marketing margin to keep competition at bay
 Initial expectation post diesel deregulation in 2014 was that marketing margins would expand. However, the OMCs have deliberately kept marketing margins low to prevent competition from non-OMCs.
8It is going to be a consumption led story
Expect strong growth in petrol and diesel consumption
8IOC is on top of the rung
Among other downstream players, find out why IOC is ahead of the pack and how Paradeep Refinery will eat into the market share of the others
8Fuel retail outlet economics challenging at low volumes
At an all-India level, average monthly fuel volume stood at ~170KLPM and the estimate is that of an RoIC of ~12% at these volumes.
8OMCs continue dominating marketing infrastructure
 Low marketing margins would prevent any meaningful competition and OMCs are deliberately keeping margins down to keep competition at bay
8GRMs may be hit
The lobal glut in refining will expand by 2.2mbopd over 2016-21. In the short term too, the expiry of Chinese tax breaks on smaller vehicles, along with high petrol inventory and the end of driving season in the US, will dampen benchmark cracks.
8OMCs improve their operating leverage
Led by several process-efficiency projects, the OMCs have been able to increase the distillate yield.
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