Brazil's base oils market returned close to balance in May as disruption-driven stock-building eased
Domestic production reached a seven-month high, but imports continued to supply around two-thirds of the market despite easing from April's peak
The improved balance masked continued dependence on overseas supply, leaving Brazil exposed to tighter export availability from key suppliers
Brazil's base oils market returned close to balance in May as disruption-driven demand eased, although continued reliance on imports left it dependent on shipments from key suppliers.
Total demand slipped to less than 137,000 cubic metres (121,000 tonnes) in May, from almost 145,000 cubic metres in April, ANP data showed.
Demand fell 6% from a year earlier, the first annual fall in four months, after strong growth during March and April.
The slowdown followed similar reversals in regional and more distant markets such as Argentina and Italy, reinforcing signs that much of the spring demand surge reflected disruption-driven stock-building rather than stronger underlying consumption.
Supply eased to around 135,000 cubic metres, down from a nineteen-month high of more than 155,000 cubic metres in April and almost matching total demand.
The closer supply-demand balance masked its fragility.
Brazil’s reliance on overseas supply remained well above historical levels, while shipments from its main import source were likely to focus more on meeting requirements in its own market.
Key Highlights
· Domestic production rose to almost 51,000 cubic metres, its highest level in seven months.
· Imports fell back from April's 19-month high but still accounted for around 67% of total supply, well above typical historical levels.
· The supply-demand gap narrowed to less than 1,500 cubic metres after a large surplus in April and even larger shortfall in March.
· Lubricants demand fell from April for the first time in five years, adding to signs that the disruption-driven buying cycle had peaked.
Market Repercussions
Brazil's market returned to a more balanced position, but not to a more self-sufficient one.
Disruption-driven buying that distorted March and April faded, allowing supply and demand to move back into balance. But imports continued to cover around two-thirds of domestic requirements, leaving Brazil unusually dependent on overseas availability.
Brazil draws most of its imported supply from the US, where slumping Middle East imports left that country reliant on local refiners to cover more of its domestic requirements.
Any slip in Brazil’s domestic output or reduction in US export availability would quickly reopen the supply gap even if demand reverts to more typical levels.