China’s base oils supply surged to a five-year high in March, building a buffer as supply disruptions from late February tightened availability across other markets.

Total supply, or output and imports combined, rose to close to 830,000 tonnes in March, up from 680,000 tonnes in February and the highest since March 2021, OilChem China and General Administration of Customs data showed.

Such a steep jump in supply would typically raise concern over a growing surplus, even with a seasonal pick-up in consumption.

The higher inventories instead left China better positioned to limit the impact of any change in domestic or overseas base oils supply in response to market disruptions from end-February.

Key Highlights

·         Base oils imports rose to a 26-month high, after domestic output had already risen to the highest in more than five years.

·         Imports from Asia rose to a three-year high amid a jump in shipments from Group I and Group II suppliers in the region.

·         First-quarter supply exceeded 2.20 million tonnes, up from less than 1.80 million tonnes during the fourth quarter to the highest since the first half of 2021.

Market Repercussions

Imports rose even as domestic Chinese Group II base oils prices lagged the surge in regional prices from early March, narrowing arbitrage incentives for fresh spot inflows.

The divergence pointed to a large share of March shipments being arranged before the late-February disruptions.

Even if shipments ease in the coming months, the surge in March and first-quarter supply left China well positioned to absorb any slowdown.

Elevated stocks enabled domestic blenders to secure feedstock and maintain steady operating rates, contrasting with other markets where tightening availability was beginning to constrain production.