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Post diesel price hike: Bulk buyers pump up sales, but the trend may not last long

The surge has further distorted the market, which has already seen a massive shift of consumers to diesel cars.

, ET Bureau|
Updated: Jan 30, 2013, 07.10 AM IST
The surge has further distorted market, which has already seen a massive shift of consumers to diesel cars as petrol prices are significantly higher.
The surge has further distorted market, which has already seen a massive shift of consumers to diesel cars as petrol prices are significantly higher.
NEW DELHI/HYDERABAD: Retail sales of diesel have soared up to 20% in some regions in the past week as bulk buyers are making a beeline for cheaper fuel available at petrol pumps after the recent change in pricing norms.

The surge has further distorted the retail market, which has already seen a massive shift of consumers to diesel cars as petrol prices are significantly higher. A sharp increase in CNG prices has added to the demand for diesel, which rose 22% in Delhi in the December quarter and continues to grow at the same scorching pace this month. Petrol sales in large cities such as Delhi have dropped 3% in recent months.

Bulk buyers, who normally purchase diesel in tankers directly from oil companies, now have to pay about 20% more than the price at retail pumps since the government allowed market pricing for big customers and promised to gradually raise retail prices to market levels in a year. This has triggered a rush of big buyers to petrol pumps where they find diesel about Rs 10 cheaper.

The surge is bad news for state firms such as IOC, HPCL and BPCL, which were hoping bigger margins from big customers would offset the revenue loss from retail sales at state-set prices.

"It is difficult to prevent malpractices. In the last few days, we have seen higher demand for diesel at retail outlets. In some markets, sales have risen 5%, in some cases 15%, and there are areas where sales have gone up even 20%," said a senior executive in IndianOil's marketing division.

Sales have increased in Gujarat, where state roadways buses have started filling their tanks with diesel from petrol pumps.

Trend may not Last Long

Other states also have similar plans, industry officials said.

"In some places they have already shifted to petrol pumps and in other places they are making plans. The price differential is very high," an IOC executive said.

In Andhra Pradesh, retail sales at several pumps have risen 20% as industrial users are buying cheaper fuel at pumps, said Rajiv Amaram, joint secretary of the Confederation of Indian Petroleum Dealers, which represents 4,000 pumps in the state.

"Fuel buyers, whether general or industrial users, normally go to bunks where they get relatively cheaper fuel. Anybody, whether retail or industrial user, is entitled to 2,000 litre of fuel purchase at retail pumps, and we cannot stop them from such purchases as long as they are under the prescribed limit per transaction," he told ET.

The good news for oil companies is that this phenomenon may not last very long because of practical problems such as restrictions on quantity, and the government's promise to raise retail prices gradually to international levels. "We think the jump in diesel sales at retail pumps because of industrial users would be a temporary phenomenon that could last for a few months when the differential between diesel prices of retail and bulk will narrow down," said Amaram said.

Oil industry officials said there were other issues that may bring back buyers to bulk purchases. "There are a few issues like how to pick up the fuel. Retail is cash-and-carry business typically, but in bulk sales it can be different. And the volume is so big, it will be quite difficult for bulk users to keep buying from retail outlets," an oil industry executive said.

Delhi has recorded one of the highest growth rates in diesel, 22% a year, since October, despite the increase in retail prices, according to the petrol traders' association.

The demand for CNG and petrol has declined commensurately.

"There is still a difference of Rs 14 in diesel and petrol prices and the average cost of CNG is almost on a par with diesel. Consumers from both the segments are now shifting to diesel," said Ajay Bansal, general secretary, Federation of All India Petrol Traders.

CNG price in Delhi is Rs 39/kg, in Gujarat Rs 56/kg and in Mumbai Rs 34/kg, and its overall sales growth has been stable 8-10% in 2012 but is facing a slump. Currently, petrol costs Rs 67/litre and diesel Rs 45/litre in the Capital.

"The positive growth curve of diesel is same all over the country, rather petrol sales have dipped in all parts of the country in variable proportions," said Bansal.

Dealers say given the extra installation cost of CNG and the relatively longer time it takes to refuel, it would also deter customers and prompt them to go for diesel cars.

Some dealers said petrol pumps were also turning down requests from big buyers to purchase diesel. Rajiv Amaram said most of the bulk buyers approach fuel pumps with large capacities, which are normally located on the outskirts of cities and highways.

"The pumps on the highways sell some 40,000 litre a day as against a few large pumps in the city that sell some 10,000 litre a day and majority of pumps that sell an average of 3,000 litre a day."

(With inputs from Mitul Thakkar)

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