Japan’s April Base Oils/Lubricants Demand Rises For 7th Month

• Base oils and lubricants demand rose for a seventh straight month in April to the second-highest level in 23 months

• Exports fell 63% year on year — the sharpest contraction in more than a decade — as strong domestic demand cut availability for overseas markets

• Higher buyer inventories, easing price momentum and signs of improved regional supply pointed to slower procurement activity in the coming months

Japan’s base oils and lubricants demand rose in April for a seventh straight month, extending a surge driven by forward buying to cover against supply disruptions and leaving buyers with stocks that could now slow procurement activity.

Demand came to 165,000 kilolitres (146,000 tonnes) in April, down from 181,000 kilolitres in March but up 30% year on year, METI data showed.

The volume was the second-highest in 23 months, behind only March's level, while the pace of growth was the second fastest in 26 months.

Japan's demand surge mirrored a pattern visible across other markets in Europe and the Americas, where buyers pulled forward consumption to guard against supply disruptions and rising prices from early March.

The buying left downstream buyers with elevated inventories just as Asia's supply conditions began to improve and the sharp rise in regional base oils prices started to lose momentum in May.

Key Highlights

·         Base oils exports fell 63% year on year in April, extending a slide in flows for a fourth straight month.

·         Japan’s lubricants demand rose 16% year on year in March, the fastest pace since June 2021, with engine oils up 23% and industrial oils up 12%.

Market Repercussions

Strong domestic demand reduced surplus volumes available for export, contributing to tighter regional supply and upward pressure on Asian base oils prices in March and April.

Lower crude oil prices in May, signs of steadier Asian base oils supply, and a seasonal slowdown in demand in the coming months raised the prospect of reversing that pattern.

The shift could prompt buyers to draw down existing inventories before returning to the market, while reducing the need to maintain the elevated stock levels built up since March.

Higher domestic inventories and a slowdown in demand would also allow more surplus base oils volumes to re-enter export markets, easing some of the supply pressure that supported the surge in Asia prices in March and April.

Group III base oils demand remained the exception, with its availability staying tight even as conditions eased for other grades.