Oil companies may soon start losing money on sale of petrol too

With the rupee falling to new lows against the dollar and the Syrian crisis pushing global crude oil prices higher, the concerns that Indian oil marketing companies might again start losing money on petrol sales are back.

According to estimates, if the companies are not allowed to raise petrol rates at least Rs 5 a litre by the first fortnight of September, they might begin to suffer underrecoveries on this decontrolled auto fuel, too -- for the first time this financial year.

Brent crude, which had closed at $116.27 a barrel on Tuesday, had risen to $118.04 a barrel at 6 pm on Wednesday.

The rupee closed near the 69-a-dollar mark.

In the second fortnight of this month, Brent has zoomed from $111.28 to the $118 level, while the Indian currency has slid around 12 per cent since the previous fortnightly price adjustment, on August 16.

Debashish Mishra, senior director, Deloitte India, said: “There’s a serious underrecovery threat on petrol, unless the government goes for a significant hike in prices.

The overall underrecovery on sale of sensitive petroleum products might cross Rs 2 lakh crore (Rs 2 trillion) this year.”

According to industry experts, for the second fortnight of this month, the average underrecovery on petrol now stands at around Rs 1.9 a litre.

“With the developments over the past few days, unless there is a hike -- even as a Parliament session is on -- the price hike required to offset oil firms’ losses would be Rs 5-6 a litre by September 15.

"This would lead to a situation like last year, when there was an underrecovery of Rs 1,100 crore on petrol,” said Emkay Global Financial Services’ Dhaval Joshi.

A senior petroleum ministry official, however, said the government was unlikely to go for a major increase in the prices of diesel, LPG or petrol before Parliament’s monsoon session was over.

The ministry is learnt to be examining the proposal to raise diesel price by more than the agreed 50 paise a month and even increase the price of subsidised domestic cooking gas.

But Petroleum Minister M Veerappa Moily had on Tuesday said: “At the moment, there is no proposal for a higher dose of increase in the price of diesel or an LPG price hike”.

According to oil companies, there had not been any underrecovery on petrol until the first quarter of the current financial year.

In June 2010, the government had effected a decontrol of petrol prices.

Diesel, on the other hand, is being decontrolled in a phased manner since January this year.

The Brent crude price has been rising over concerns that the US and UK might attack Syria, holding President Bashar al-Assad responsible for a chemical-weapon attack in Damascus.

The rise is alarming for India, as the composition of its basket represents the average of Oman and Dubai for sour grades and Brent for sweet grade in the ratio of 68.2:31.8.

According to a Bloomberg report, the Syrian crisis might lead Brent prices to zoom to $150 a barrel.

Emkay Global’s Joshi, however said: “It’s highly unlikely that Brent prices would go above $125 a barrel.”

For the second fortnight of this month, the under-recoveries on diesel, kerosene and LPG stood at Rs 10.22 a litre, Rs 33.54 a litre and Rs 412 a cylinder, respectively.

State-run Indian Oil, Hindustan Petroleum and Bharat Petroleum were together incurring a revenue loss of Rs 389 crore on a daily basis in selling fuel below market price.

Rupee crash is BAD news for car buyers

German luxury car maker Mercedes-Benz on Thursday said it will hike prices of its entire model range in India by up to 4.5 per cent from September 1 to partly offset impact of rupee depreciation and higher import duties.
The quantum of price revision will be in the range of 2.5 per cent to 4.5 per cent across the models that the company sells in India.
With the latest price revision, the company's new A-Class 180 CDI luxury compact car will now be priced at Rs 22.05 lakh, an increase of 4 per cent, Mercedes- Benz India said in a statement.
The B-Class 180 CDI model will now be pricier by 4 per cent at Rs 23.50 lakh while the C-Class 200 CGI sedan will now cost Rs 32.25 lakh, an increase of 2.5 per cent, it added.

Rupee could touch 75/USD: BofA-ML

The Reserve Bank of India (RBI) will have to take far more pro-active steps to rebuild forex reserves, because if the status quo remains, rupee could touch 75 per US dollar by the end of 2014, Bank of America Merrill Lynch said in a report. According to the global financial services firm, the collapse of rupee is likely "overdone" but that said "INR expectations are racing to Rs 70/USD (and now, even Rs 75/USD)." If the status quo remains, BofA-ML said  "a conservative estimate is USD/INR goes to 70 year-end and 75 by-end 2014 based on NDF forward pricing." NDF deals are forward transactions settled in dollars because the rupee, being a non-convertible currency, cannot be 'delivered' outside India.
The rupee on Wednesday had collapsed to a lifetime low of 68.85 against the dollar and closed at 68.80, registering its biggest single-day loss of 256 paise, as global oil prices jumped, deepening concerns about the current account deficit and capital outflows.
The rupee today however, recovered from its all-time low by rising 170 paise to 67.10 against the dollar in early trade on fresh selling of the US currency by exporters and banks amid fresh measures announced by the RBI to check free-fall of the currency.
RBI on Wednesday opened a special window to help the three state-owned oil marketing companies needing about $8.5 billion every month meet their daily foreign exchange requirement in a bid to check the rupee's free fall.
"We welcome yesterday's initiatives to provide RBI swaps to fund oil imports and seek swap lines against trade arrangements as short-term relief. Yet, to stabilise INR expectations, we believe that the Reserve Bank of India (RBI) will have to take far more pro-active steps to rebuild FX reserves," the report said.
The RBI should launch a scheme to attract significant forex inflows where the INR risk would be borne by the RBI to comfort investor confidence like issue of NRI or sovereign bonds or reviving FCNRA deposits.

"We ourselves estimate that the RBI would be hard pressed to sell $25 billion, and every US Dollar sold will likely only raise further questions about the adequacy of forex reserves," the report noted.

Food Bill credit negative for India: Moody's

Giving a thumbs down to the Food Security Bill, rating agency Moody's said on Thursday the measure is credit negative as it will weaken government finances and deteriorate macroeconomic situation.

"The measure (Food Bill) is credit negative for the Indian government because it will raise government spending on food subsidies to about 1.2 per cent of gross domestic product per year from an estimated 0.8 per cent currently, exacerbating the government's weak finances," Moody's said in a statement.

Moody's currently assigns 'Baa3' rating on India, with a stable outlook. 'Baa3' means medium grade with moderate credit risk.

The Food Security Bill was passed by the Lok Sabha earlier this week.

The Bill seeks to provide cheap foodgrains to 82 crore (820 million) people in the country, ushering in the biggest programme in the world to fight hunger.

The annual financial burden after its implementation is estimated to be about Rs 1.30 lakh crore (Rs 1.3 trillion) at current cost.

As the Bill is likely to be implemented in the remaining months of the current fiscal, its impact on government finances will be less in 2013-14, but much more in the years to come, Moody's said.

The total food subsidy budgeted in the current fiscal is Rs 90,000 crore (Rs 900 billion), of which Rs 10,000 crore (Rs 100 billion) is towards the implementation of the programme.

"It will raise future subsidy expenditure commitments, hindering the government's ability to consolidate its finances," Moody's said, adding, the government subsidies will contribute to the already high food inflation.

The agency further said India's fiscal deficits are already higher than those of its emerging market peers.
Giving a thumbs down to the Food Security Bill, rating agency Moody's said on Thursday the measure is credit negative as it will weaken government finances and deteriorate macroeconomic situation.

"The measure (Food Bill) is credit negative for the Indian government because it will raise government spending on food subsidies to about 1.2 per cent of gross domestic product per year from an estimated 0.8 per cent currently, exacerbating the government's weak finances," Moody's said in a statement.

Moody's currently assigns 'Baa3' rating on India, with a stable outlook. 'Baa3' means medium grade with moderate credit risk.

The Food Security Bill was passed by the Lok Sabha earlier this week.

The Bill seeks to provide cheap foodgrains to 82 crore (820 million) people in the country, ushering in the biggest programme in the world to fight hunger.

The annual financial burden after its implementation is estimated to be about Rs 1.30 lakh crore (Rs 1.3 trillion) at current cost.

As the Bill is likely to be implemented in the remaining months of the current fiscal, its impact on government finances will be less in 2013-14, but much more in the years to come, Moody's said.

The total food subsidy budgeted in the current fiscal is Rs 90,000 crore (Rs 900 billion), of which Rs 10,000 crore (Rs 100 billion) is towards the implementation of the programme.

"It will raise future subsidy expenditure commitments, hindering the government's ability to consolidate its finances," Moody's said, adding, the government subsidies will contribute to the already high food inflation.

The agency further said India's fiscal deficits are already higher than those of its emerging market peers.

It said the high fiscal deficit contributes to the Current Account Deficit by keeping domestic demand high and increasing imports.

A high CAD, the difference between inflow and outflow of foreign currency, puts pressure on the domestic currency and fuels prices.

The rupee has depreciated about 25 per cent this year and touched a record low of 68.80 to a dollar on Wednesday.

The Food Bill seeks to provide highly subsidised food grains to 75 per cent of the rural and 50 per cent of the urban population through the public distribution system. It will guarantee 5 kg of rice, wheat and coarse cereals per month per person at a fixed price of Rs 3, Rs 2 and Rs 1 respectively.Giving a thumbs down to the Food Security Bill, rating agency Moody's said on Thursday the measure is credit negative as it will weaken government finances and deteriorate macroeconomic situation.

"The measure (Food Bill) is credit negative for the Indian government because it will raise government spending on food subsidies to about 1.2 per cent of gross domestic product per year from an estimated 0.8 per cent currently, exacerbating the government's weak finances," Moody's said in a statement.

Moody's currently assigns 'Baa3' rating on India, with a stable outlook. 'Baa3' means medium grade with moderate credit risk.

The Food Security Bill was passed by the Lok Sabha earlier this week.

The Bill seeks to provide cheap foodgrains to 82 crore (820 million) people in the country, ushering in the biggest programme in the world to fight hunger.

The annual financial burden after its implementation is estimated to be about Rs 1.30 lakh crore (Rs 1.3 trillion) at current cost.

As the Bill is likely to be implemented in the remaining months of the current fiscal, its impact on government finances will be less in 2013-14, but much more in the years to come, Moody's said.

The total food subsidy budgeted in the current fiscal is Rs 90,000 crore (Rs 900 billion), of which Rs 10,000 crore (Rs 100 billion) is towards the implementation of the programme.

"It will raise future subsidy expenditure commitments, hindering the government's ability to consolidate its finances," Moody's said, adding, the government subsidies will contribute to the already high food inflation.

The agency further said India's fiscal deficits are already higher than those of its emerging market peers.

It said the high fiscal deficit contributes to the Current Account Deficit by keeping domestic demand high and increasing imports.

A high CAD, the difference between inflow and outflow of foreign currency, puts pressure on the domestic currency and fuels prices.

The rupee has depreciated about 25 per cent this year and touched a record low of 68.80 to a dollar on Wednesday.

The Food Bill seeks to provide highly subsidised food grains to 75 per cent of the rural and 50 per cent of the urban population through the public distribution system. It will guarantee 5 kg of rice, wheat and coarse cereals per month per person at a fixed price of Rs 3, Rs 2 and Rs 1 respectively.
It said the high fiscal deficit contributes to the Current Account Deficit by keeping domestic demand high and increasing imports.

A high CAD, the difference between inflow and outflow of foreign currency, puts pressure on the domestic currency and fuels prices.

The rupee has depreciated about 25 per cent this year and touched a record low of 68.80 to a dollar on Wednesday.

The Food Bill seeks to provide highly subsidised food grains to 75 per cent of the rural and 50 per cent of the urban population through the public distribution system. It will guarantee 5 kg of rice, wheat and coarse cereals per month per person at a fixed price of Rs 3, Rs 2 and Rs 1 respectively.

Gold tumbles from record high

Gold prices on Thursday fell from record high by plunging Rs 1,575 to Rs 32,325 per ten gram on profit-selling by stockists driven by recovery in rupee amid a weakening global trend.
Selling pressure emerged at existing higher levels as gold climbed to Rs 33,900 after it touched Rs 34,500 per ten gram intra-day yesterday with its biggest ever gain of Rs 1,900 in the backdrop of the rupee hitting record low of 68.85 per dollar.
Besides the rupee recovering to 67.30, some retailers selling old scrap gold further influenced the trading sentiment, traders said.
They said the market also received impact of weakening global trend on optimism the US economic data may reinforce the case for the Federal Reserve to slow stimulus.
Gold in Singapore, which normally set price trend on the domestic front, lost 0.9 per cent to 1,404.88 dollar an ounce and silver by 2.8 per cent to 23.66 dollar an ounce.
Silver followed suit and plunged by Rs 2790 to Rs 55,710 per kg on poor offtake by industrial users and coin makers at higher levels.
On the domestic front, gold of 99.9 and 99.5 per cent purity tumbled by Rs 1575 each to Rs 32,325 and Rs 32,125 per ten grams respectively. Sovereign lost Rs 200 at Rs 25,300 per piece of eight gram.
Silver ready nosedived by Rs 2790 to Rs 55,710 per kg and weekly-based delivery by Rs 3700 to Rs 55,300 per kg. The white metal had surged Rs 3700 in the previous session.
Silver coins also plunged by Rs 3,000 to Rs 89,000 for buying and Rs 90,000 for selling of 100 pieces on poor demand at prevailing higher levels.