Naphtha consumption in India is set to fall by 11% y-o-y in 2026, its second consecutive annual decline. This might look surprising considering the resilience of Indian economy. Two key factors are driving this decline:
- Weak petrochemicals market
- High naphtha prices relative to competing fuels such as ethane and natural gas
Weak petrochemicals market: India’s General Index of Industrial Production (IIP) and Manufacturing IIP have grown y-o-y for nine consecutive months through July 2026. Over the same period, however, the index for Manufacture of Chemicals and Chemical Products has been volatile, posting negative growth in four of the last nine months. The latest index value for this sub-sector was just 109.8 in July (relative to the base year 2022–23), underscoring the sub-sector’s underlying weakness, as the index has grown little over the past three years. This weakness is reflected in soft annual consumption figures in recent years.
High naphtha prices relative to competing fuels: Elevated naphtha prices, driven by the ongoing Middle East crisis, have severely hit the economics of naphtha-based crackers across Asia. Plant owners have either reduced run rates or switched to alternate fuels such as natural gas, ethane, or LPG, where that flexibility exists. In India, for instance, Reliance has consistently benefited from ethane cracking economics over naphtha. Capped domestic natural gas prices further reinforce this as an attractive feedstock for petrochemical plants. Overall petrochemical demand in India is weak, but wherever plants have fuel-switching flexibility, alternate fuels are directly eating into naphtha’s market share.
A caveat: We believe a significant volume of naphtha is also being consumed internally, approximately 2.0-2.5 MMT in 2026, for gasoline pool optimization, intermediate conversion to LPG, propylene production, and similar uses. We believe this consumption basket is not being fully reflected in official data, meaning India’s actual naphtha consumption could be higher than reported.
Naphtha production in India is also set to fall in 2026, though at a much lower rate of 1% y-o-y. This decline is primarily driven by refiners optimizing their product slate toward higher-revenue products such as gasoline. Benchmark Singapore naphtha margins over Dubai crude averaged US$1.5/bbl in January–July 2026, compared to –US$5.80/bbl over the same period last year. While naphtha margins have improved in 2026, they remain volatile. Weak domestic demand in India further reduces the incentive for higher production.
So consumption is set to fall steeply (by 11%, y-o-y), while production will fall by modest 1%. In principle, this surplus should show up as higher exports. Instead, India’s naphtha exports are also set to fall by 10% y-o-y, to around 5.5 MMT, reflecting weakness seen in recent months. So where is the surplus volume going? We don’t believe it’s building inventory only. Instead, it further supports our view that a significant volume is being absorbed into refiners’ internal processes.
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