Japan’s base oils and lubricants demand rose in March to its highest in almost two years as buyers accelerated purchases to secure supply ahead of expected disruptions.

Total consumption rose to 181,000 kilolitres (160,000 tonnes) in March, up 42% year on year to the highest since May 2024, Ministry of Economy, Trade and Industry data showed.

The size of the increase was the largest since August 2022 and mirrored similar demand strength across major markets including Italy and Brazil, where forward buying also gathered pace.

Demand typically rises in March across many global markets, including Japan.

This year’s increase was much larger than usual, pointing to buyers locking in supply for longer to reduce exposure to supply disruptions and surging prices.

Key Highlights

·         Demand rose 20% month on month, the steepest February-to-March increase in three years.

·         Base oils exports fell 49% year on year and for a third straight month.

·         Exports to China rose to a 23-month high, while shipments to Southeast Asia held close to their lowest in more than a year.

·         Total demand, or domestic consumption and exports combined, rose to the highest since May 2024.

Market Repercussions

Surging domestic demand lifted end-users’ inventories, cushioning the immediate impact of subsequent supply disruptions.

Stronger domestic demand also drew down refiners’ stocks, reducing surplus availability for export.

Japan’s March shipments to overseas markets were likely arranged before the supply disruptions began at end-February, with the stronger flows to China adding to the build-up of supply in that market ahead of the disruptions.

Japan’s April shipments to overseas markets could instead start to reflect the impact of the country’s strong domestic demand and reduced surplus availability.

Any such slowdown in exports would add to tightening availability across Asia at the start of the second quarter.