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China's base oils output fell from a four-year high in May as Group II production eased, but volumes remained 17% above year-earlier levels
Domestic Group II prices stayed at a steep discount to international markets, pointing to ample supply and limited need for additional imports
Group III output rose to a 14-month high as surging prices encouraged refiners to bring more domestic premium-grade capacity online
China's base oils output fell in May from a four-year high on reduced Group II production, but supply remained well above historical levels and continued to outpace domestic requirements.
Total output fell to less than 515,000 tonnes in May from more than 575,000 tonnes in April, according to OilChem China data. The volume was the lowest since December.
The decline followed an unusually strong start to the year. Output remained up 17% from a year earlier and rose year on year for a seventh straight month, helping limit the impact of global supply disruptions and supporting higher lubricants exports.
The pullback pointed to maintenance work rather than a deterioration in underlying supply, with domestic prices continuing to point to plentiful availability.
Key Highlights
· Output fell to a five-month low but remained well above levels seen during the prior four years.
· Group II output fell below 430,000 tonnes from more than 500,000 tonnes in March and April, reaching a six-month low.
· Group I production fell below 50,000 tonnes for the first time since November 2021.
· Group III output rose to close to 40,000 tonnes, rebounding from less than 25,000 tonnes in April to the highest in 14 months.
· China's Group II prices continued to lag FOB Asia cargo prices, while Group III prices tracked international gains more closely.
Market Repercussions
The drop in output was unlikely to impact the wider Asian market because it reflected domestic maintenance and softer demand rather than a shortfall that other markets would need to fill.
China's supply had already surged during the first four months of the year, helping support exports, cover seasonal demand and limit the impact of global supply disruptions.
Domestic Group II prices continued to lag international markets, pointing to supply that remained more than sufficient and leaving little incentive to increase imports.
Group III was the main exception. Domestic prices kept pace with international benchmarks, reflecting tighter global availability following Middle East supply disruptions.
Higher domestic prices improved the economics of premium-grade production, incentivising refiners to increase output that had remained well below China’s large installed Group III capacity.
The combination of maintenance ending, a seasonal slowdown in demand and already elevated inventories pointed to supply remaining comfortable in the coming months.
