Asia's May Base Oils Exports Fall To 16-Month Low

• Base oils exports fell to a 16-month low in May, offsetting weakening regional demand and leaving fewer surplus volumes available for overseas markets

• Shipments to India and China slowed amid reduced arbitrage opportunities, while Southeast Asia absorbed a larger share of regional exports

• The manageable export surplus limited downward pressure on US and European prices even as demand softened

Asia's base oils exports fell to a 16-month low in May as weaker shipments from Singapore offset softer buying from India and China, leaving fewer surplus volumes available for more distant markets.

Regional exports fell to less than 590,000 tonnes in May from more than 610,000 tonnes in April, Korea Customs Service, Enterprise Singapore, METI and other government data showed.

Exports were down 8% from a year earlier and well below the monthly average of more than 660,000 tonnes during the year to April.

Exports declined as shipments from Singapore slid to a six-year low, flows from South Korea remained lower than usual, while Indonesia’s exports fell to a 15-month low.

Slowing demand across Asia should have produced a bigger surplus. The drop in exports instead offset the slowdown and limited the volume of surplus supply available for more distant markets.

Key Highlights

·         Total regional exports remained more than 50,000 tonnes below their average monthly level during the previous year.

·         Exports to India fell below 100,000 tonnes for the first time in 23 months as an unattractive arbitrage diverted surplus spot volumes to other markets.

·         Shipments to China dropped to a 10-month low as ample domestic supply and lower local prices curbed import demand.

·         Exports to the Middle East remained negligible after averaging almost 35,000 tonnes a month before the disruption period.

·         Southeast Asia accounted for 32% of total exports, its highest share in nine months, after shipments lagged demand to that region in each of the previous four months.

Market Repercussions

Asia's export surplus remained more limited than expected despite slowing regional demand.

Weaker buying from India and China and the ongoing pause in flows to the Middle East reduced export opportunities within the region. But Singapore's prolonged production shortfall limited the additional volumes available for shipment.

The more manageable surplus reduced the pressure on exporters to clear large volumes into more distant markets such as Europe and the Americas.

Those markets were also left without the competitive pressure that a larger Asia surplus would have created.

The pattern pointed to a supply recovery that remained more regional rather than global and that would only change if production recovers further and regional demand stays weak.