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Business News/ Companies / News/  IOC capacity utilization drops to 75% in Jul amid fresh restrictions

New Delhi: Indian Oil Corporation Ltd (IOC), the country’s largest fuel retailer, on Friday said its capacity utilization, which had increased to around 93% in the first week of July, has come down to 75% as many state governments reimposed lockdowns.

Addressing reporters on Friday, Indian Oil chairman, S.M. Vaidya said the company doesn’t expect capacity utilization to be back to pre-covid levels in the near future.

Capacity utilization IOC, the country’s largest oil refiner, had shrunk to around 35% at the beginning of the lockdown, due to India’s petroleum product demand nosediving on account of the restrictions to prevent the spread of coronavirus.

Energy consumption, especially electricity and refinery products, is usually linked to overall demand in the economy.

The development comes in the backdrop of other economic indicators such as electricity, railway freight, goods and services tax collections and exports showing some recovery. While Indian economy had started recovering after the nationwide lockdown was lifted in June, many analysts say the unabated rise in covid-19 infections in the unlock phase and localised re-imposition of lockdowns in several states have interrupted this recovery in recent weeks.

Vaidya said that he expects the crude oil prices to hover around $40 per barrel levels in the second half of the current financial year.

The international benchmark, Brent crude, traded at $43.36 per barrel on Friday and the US West Texas Intermediate (WTI) was at $40.26 per barrel at the time of going to press. Brent crude had hit a 21-year low and the US oil futures slumped to negative for the first time in April as the glut overwhelmed the world’s limited storage facilities, triggering massive selling by traders.

With the world slowly reopening businesses, oil prices have been up after April’s downward spiral, when demand almost vanished. The cost of the Indian basket of crude, which comprises Oman, Dubai and Brent crude, was $42.98 a barrel on 30 July. The price averaged $56.43 and $69.88 per barrel in FY18 and FY19, respectively. It was $19.90 in April and $30.60 in May, according to data from the Petroleum Planning and Analysis Cell. The price was $40.63 a barrel in June.

The Indian economy is attempting a gradual return to normal after the lockdown as India enters Unlock 3.0.

IOC on Friday also announced a net profit of only 1,911 crore for the first quarter of financial year (202-21), a 47% decline from 3,596 crore profit registered in the corresponding period of the last financial year. This was primarily on account of the state-run firm registering an inventory loss.

“IndianOil reported Revenue from Operations of 88,937 crores for the first quarter of Financial Year 20-21 as compared to 1,50,137 crores in corresponding period of Financial Year 19-20," the company said in a statement.

IOC also posted lower refining margins. The gross refining margin— the difference between the cost of processing crude and the revenue earned from the sale of finished products—was $ 1.98 per barrel for the quarter ended 30 June 2020 against $ 4.69 per barrel in the first quarter of 2019-20.

“IndianOil sold 16.504 million tonnes of products, including exports, during the first quarter of financial year 2020-21. Our refining throughput for Q1 20-21 was 12.930 million tonnes and the throughput of the Corporation’s countrywide pipelines network was 15.017 million tonnes during the same period," Vaidya, said in the statement.

Vaidya also said IOC is not bidding for Bharat Petroleum Corporation Ltd (BPCL) at this point of time because state-owned firms are not allowed to do so.

The deadline for BPCL’ privatization has been extended. The PSU is expected to attract global energy majors, with the proceeds from the sale crucial for the government to contain its fiscal deficit amid lower-than-expected goods and services tax collections.

Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Updated: 31 Jul 2020, 11:55 PM IST
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