Industry Trend Analysis - Price Hikes To Exacerbate Fuel Demand Headwinds - APR 2017

BMI View: The increase of South Africa's general fuel levy from April 2017 will exacerbate existing headwinds to domestic fuel consumption, which is already significantly restrained by disproportionately high pump prices.

Following the 2017-2018 budget speech by finance minister Pravin Gordhan, the general fuel levy will increase by ZAR0.30/litre, and the Road Accident Fund (RAF) levy will increase by ZAR0.09/litre. These adjustments will drive up the price of both gasoline and diesel in South Africa. The higher tax rates have been announced in an attempt to address the largest government revenue shortfall for eight years. The general fuel levy will now stand at ZAR3.15/l for gasoline and ZAR3.00/l for diesel. We expect higher fuel prices for both diesel and gasoline to exacerbate existing limitations to refined fuel consumption within the country. Whilst we still predict marginal increases in total fuels consumption over the medium term, fuel demand growth will to continue to greatly underperform its potential.

Retail demand growth, whilst notably stymied, will incrementally increase over 2017 due to continued consumer preference of car travel over domestic public transport links. For many consumers, there are limited alternative travel options which will support current levels of fuel consumption, however we predict notable demand destruction for consumers with more flexible travel plans and for those greater constrained by inflationary pressures on disposable incomes.

Diesel & Gasoline Price Will Restrain Consumption
South Africa: Refined Fuel Consumption, 000b/d
e/f = BMI estimate/forecast. Source = BMI/EIA

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