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* May diesel exports expected to drop to 1.3 mln-1.7 mln tonnes -trade
* Summer demand absorbs barrels, cutting exports about 30 pct
* Exports to remain higher than last year after refinery upgrades
* Shipments to rebound when monsoon season hits late June-July
By Jessica Jaganathan
SINGAPORE, May 10 (Reuters) - India's May diesel exports will fall by as much as 30 percent from recent months as refiners meet local summer demand, but any benefit for beleaguered regional refining margins will be short-lived as exports rebound in June, industry sources told Reuters.
Net diesel exports are also likely to remain higher than last year despite the drop in the summer months since new capacity and refinery upgrades have given India a larger surplus of the fuel, with no imports since August, the sources said.
That means any boost to regional diesel margins - which Asian refiners depend upon for much of their profit - would be fleeting after rising exports from China, Japan and South Korea took margins to a more than two-year low in April.
"Yes, there's been an uptake in (domestic) demand this year but it's not like the usual peak demand in summer of previous years," a source with an Indian refiner said.
"I think once the monsoon season starts in June and really hits in July, (diesel) exports are probably going to increase quite a bit," the source said.
India and South Korea, Asia's two biggest diesel exporters, have been shipping around 2 million tonnes a month each this year. Exports from China and Japan have also been up over last year amid slow demand in Asia and Europe, and that pushed the diesel profit margin to as little as $13.86 a barrel on April 30, its lowest since the end of December 2010.
Soaring temperatures in India, however, are expected to drive domestic demand there to a peak in May and June.
Diesel, a heavily subsidised fuel in India that accounts for a third of the country's fuel use, powers small- to medium-sized generators to run air-conditioners and make up for low hydro power output in the summers. It also is used to pump water from wells to irrigate fields in the dry season.
When monsoon rains hit in late June they trim demand for power use and irrigation and replenish hydro power reservoirs. That will leave India refiners again with plenty to export.
India is expected to export 1.3 million to 1.7 million tonnes of diesel in May, or about 10 percent to 30 percent lower than 1.9 million tonnes in April, refiners and traders said.
The May export estimate would be 20 percent to 40 percent lower than March exports of 2.2 million tonnes, as cited by the oil ministry's Petroleum Planning & Analysis Cell. (ppac.org.in)
April exports are estimated to be 45 percent higher than a year ago, with May exports possibly as much as 6 percent higher.
Mangalore Refinery and Petrochemicals Corp. and Essar Oil - India's second and third largest diesel exporters - have not offered any spot cargoes for export for May and June so far, compared with about 135,000 tonnes in April and at least 100,000 tonnes in March, traders said.
Reliance Industries, owner of the world's biggest refining complex, is India's largest diesel exporter.
Their absence in the spot market could be partly due to the government deregulating diesel prices in January by allowing fuel retailers to raise the price of subsidised diesel by one U.S. cent a litre every month and asking bulk buyers to pay market rates.
"Retail prices have been increasing in India which is giving (refiners) an advantage to sell within the domestic market while demand is up," a source close to the matter said. (Editing by Tom Hogue)