Base oils output rose to the highest in more than five years, with first-quarter production reaching its highest level since early 2021
Strong output and firm imports lifted inventories, limiting China's exposure to global supply disruptions from late February
Steady supply and competitive prices left Chinese blenders well positioned to pursue export opportunities
China’s base oils output rose to a multi-year high in March, leaving domestic blenders better insulated against the global supply disruptions that tightened availability for lubricant producers elsewhere.
Total paraffinic base oils output rose to more than 630,000 tonnes in March, climbing from an already-high volume of more than 530,000 tonnes in February to the highest in at least five years, OilChem China data showed.
The sustained surge in output during the first quarter added to a pick-up in imports at least through the first two months of the year, lifting inventories and reducing reliance on overseas supplies facing growing disruption.
Key Highlights
· Group II base oils output rose to more than 540,000 tonnes, up 48% year on year to the highest in at least five years.
· Group III base oils output rose to a six-month high but still fell year on year for the ninth time in ten months.
· Total output of more than 1.70 million tonnes in the first quarter rose by 28% year on year to the highest since early 2021.
· Domestic Group II light-grade prices remained firm relative to Shandong diesel despite easing from late-February highs.
· Domestic Group II base oils prices fell relative to FOB Asia cargo values, effectively closing the arbitrage.
Market Repercussions
Higher output left Chinese blenders with more stable supplies and reduced urgency to compete for additional imports.
A more muted domestic base oils price reaction to global supply disruptions in March reinforced signs of sufficient availability.
Prices rose less sharply than FOB Asia cargo prices, leaving Chinese blenders sourcing feedstock at increasingly competitive levels relative to overseas producers and imported supplies.
Steady supply at competitive prices contrasted with other regions, where tighter supply and rising prices made it more difficult for blenders to cover requirements. Lower inventories in markets such as Southeast Asia and India compounded the challenge.
The combination of higher output, well-stocked inventories and competitive pricing gave Chinese lubricant producers a platform to pursue export opportunities as overseas markets faced tighter supply and rising prices.