Latin America’s April Base Oils Supply Catches Up With Demand

• Latin America's lubricants demand rose for a second month in April, extending disruption-driven stock-building beyond March

• Regional supply recovered and US exports increased, allowing supply to outpace demand after March's sharp shortfall

• Brazil, Argentina and Mexico all recorded demand growth, with automotive lubricants continuing to support Mexican consumption

• Higher inventories left the market better balanced but increased the risk of slower buying if supply concerns ease

Latin America's base oils supply caught up with lubricants demand in April, reversing the record shortfall in March and leaving buyers with elevated stocks that pointed to slower requirements ahead.

Total lubricants demand rose to more than 210,000 tonnes in April, up 5% year on year but down from the more-than-six-year high of more than 240,000 tonnes in March, ANP, Ministry of Economy, INEGI and other government data showed.

Demand had surged in March as buyers built inventories to protect against supply disruptions. April's continued growth pointed to an extension of the stock-building.

Regional base oils supply recovered to almost 230,000 tonnes, the highest in six months as output recovered to a three-month high while US exports to Latin America extended their rise.

The combination lifted supply above demand in April after it lagged consumption in March by the widest margin in more than two years.

Key Highlights

•  Brazil demand rose more than 11%, Argentina by 9%, while Mexico consumption grew 5% as strong automobile lubricants consumption offset weaker industrial oils demand.

• Mexico's demand accounted for 55% of US base oils and lubricants exports to the country, the highest share since December 2022, pointing to growing use of US supplies in lubricants production.

• South America's supply shortfall shrank from the widest in more than seven years in March to its narrowest in 13 months in April as regional output and US exports recovered.

Market Repercussions

Supply caught up with the further rise in demand in April, reversing March's record shortfall and leaving buyers with higher stocks to cover against domestic and overseas supply disruptions.

The recovery showed regional production and US exports were sufficient to cover the volumes absorbed during the March-April stock-build.

The recovery also pointed to enough production capacity to meet a demand surge of that size.

But adequate supply and elevated stocks now shifted the market's near-term risk from shortage to slowdown.

Buyers with higher stocks had less urgency to procure additional volumes, especially as disruption concerns began to ease.

Lower prices in Asia also improved arbitrage opportunities, pointing to additional supply flows moving into the region.

A slowdown in requirements would leave suppliers under pressure to adjust output just weeks after the concern had been about insufficient supply.