Rise in petroleum production drives core sector output to 11-month high

Output rose for the third straight month in February, mainly on the back of growth in refinery products, as well as higher coal production and electricity generation due to the onset of summer
A sudden uptick in petroleum production pushed up the output of the eight core sectors to an 11-month high of 5.5 per cent in February, after January’s output was revised to a reduced 1.4 per cent.

Core sector output had contracted for four months till November, with a broad-based decline gripping most sectors. As a result, core sector output in the April-February period dropped to 1 per cent, compared to 4 per cent in the corresponding period last year.

Output rose for the third straight month in February, mainly on the back of growth in refinery products, as well as higher coal production and electricity generation due to the onset of summer. However, experts pointed out that this would reverse in the coming months. “This uptrend is likely to prove to be fleeting, with the lockdown in March 2020 affecting production across sectors,” said Aditi Nayar, principal economist at ICRA.

The data by the Commerce and Industry Ministry, released on Tuesday, showed that production of refinery products rose 7.4 per cent in February, up from the 1.9 per cent growth in January.

Even as the sector has showed a volatile trend in FY20, senior officials had claimed that a solid recovery in production was underway as key refining units, which were earlier closed, had gone live.

Crude oil production, however, continued its downward spiral, continuing the streak of contraction for 17 months. Production reduced by 6.4 per cent — a steeper fall than the 5.3 per cent in January. Experts believe production is linked to oil prices and a higher global value tends to make production more remunerative.

Since the price of a barrel of Brent crude stood between $50 and $54 in February, compared to the present $24, crude oil production was expected to rise further or make lower losses.

Natural gas production also contracted for the 11th straight month, reducing by 9.6 per cent in January.

Elsewhere, in the energy space, coal production saw the highest uptick in output, rising 10.3 per cent, as against the previous month’s 6.9 per cent.

The sector saw contraction remaining entrenched till November, following a 24-month growth period up to July. With majority of the power generation in India still thermal-based, overall generation rose 11 per cent, compared to only 3.2 per cent in January.
The beginning of the year saw growth in generation after heavy contraction for 5 months, as sluggishness in manufacturing was understood to have led to a steep fall in power demand.

Now, the impact of social distancing and the lockdown is expected to curtail the demand for electricity sharply in the immediate term, experts say.

Latest data signals mixed results for the infrastructure segment. Steel production fell 0.4 per cent, after a fall of 1.4 per cent in January, but cement production rose 8.6 per cent, capitalising on the 5.1 per cent rise in the previous month. Both sectors have been in the grips of volatility.

A month after the industrial slowdown caught up with the fertiliser sector, February production bounced back, albeit by a small margin. It rose 2.9 per cent after shrinking marginally by 0.1 per cent in the previous month.

Experts predicted overall industrial production to rise before the Covid-19 outbreak drags it down again. “The healthy growth in core sector industries and turnaround in non-oil merchandise exports would support industrial growth in February, despite the deepening contraction in auto production. On balance, we expect industrial output to record an improved growth of 2.5 per cent in February, before slipping into a Covid-led contraction in March,” said Nayar.

According to the data from the Index of Industrial Production, contraction in the manufacturing sector had given way to a 1.5 per cent rise in January. Manufacturing output had shrunk 0.7 per cent in December.


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