Insight: China’s March base oils output stays low

China’s base oils output recovered to a seven-month high in March, mirroring a gradual recovery in the country’s economic growth.

But output was still much lower than year-earlier levels and far below production levels in 2021.

Higher base oils output raised the prospect of curbing domestic blenders’ requirements for supplies from regional refiners.

Those requirements were likely to remain steady for now while domestic output remained unusually low.

China’s combined output of Group I, Group II and Group III base oils rose to more than 335,000t in March, OilChem China data showed.

The volume rebounded from less than 295,000t in February to the highest since last August.

The August volume was already lower than usual.

Output in March still fell by 23pc from year-earlier levels and remained within a range it had held in since second-half 2022.

China’s domestic base oils prices recovered strongly relative to fob Asia cargo prices during the fourth quarter of last year.

The recovery made more feasible the arbitrage to move to China products like Group I bright stock and Group II base oils.

But the recovery began to reverse from December.

Domestic Chinese prices remained firmer than before the fourth quarter of last year. But their narrowing premium to fob Asia cargo prices made the arbitrage less attractive.

It also suggested that base oils supply in China was sufficient to cover demand despite low output, a pick-up in economic growth and a rise in lube demand during the spring oil-change season.

The dynamic suggested that base oils and lube demand remained relatively muted.

The muted recovery mirrored China’s manufacturing activity, which showed signs of slowing in March from the previous month.

A slower-than-expected economic recovery could be double-edged for regionnal base oils suppliers.

It would curb China’s requirements for additional base oils supplies.

It could also deter domestic refiners from raising their production. The move would leave blenders reliant on base oils imports to cover more of their requirements.