China’s base oils imports fell to their lowest level in almost three years in August, but steady Group III supply left blenders less exposed to shortages affecting Europe and the US.

China's base oils imports fell to 69,800 tonnes in August from 78,000 tonnes in July, the lowest since October 2023, General Administration of Customs data showed.

Inflows declined as combined Group III shipments from the Middle East and Southeast Asia slumped to the lowest in more than nine years, with supplies from the Middle East also falling in Europe and the US.

But China’s total Group III supply held steady as higher domestic output offset most of the slowdown in imports. That contrasted with Europe and the US, where lower inflows from the Middle East have squeezed availability of a key feedstock for high-end engine oils.

Key Highlights

·         Group III imports from the Middle East fell to less than 500 tonnes, from typical monthly volumes of more than 21,000 tonnes in the year to April.

·         Group III imports from the Middle East and Southeast Asia combined fell below 2,000 tonnes, the lowest in more than nine years.

·         Group III supply held near 48,000 tonnes as higher domestic output offset most of the decline in imports.

·         China’s net base oils supply fell 7% year on year to 549,400 tonnes, the lowest in 10 months and the first annual decline in eight months.

·         Group II supply fell to a ten-month low, contrasting with a rise in Group I supply to a five-month high.

·         Net imports fell to 29,100 tonnes, the lowest in more than nine years and well below the more than 105,000-tonne monthly average over the past year.

Market Repercussions

A wider Group III premium over Group II encouraged Chinese refiners to shift swing capacity from Group II, increasing domestic Group III production.

That gave blenders a steady supply of feedstock for high-end lubricants and left them less exposed to the shortages squeezing counterparts in Europe and the US.

Group III also accounts for a smaller share of China’s total base oils supply than in Europe or the US, making lost imports easier to replace with higher domestic output.

Europe and the US also saw Group III prices rise sharply, but a lack of latent domestic production capacity meant local refiners were unable to increase production quickly enough to offset the loss of Middle East supply.

That difference is already feeding into trade flows. China’s base oils and lubricants exports reached a record in August, with shipments expanding into markets beyond its established Asian destinations.