Japan’s January Base Oils Demand Extends Rise To 18-Month High

Japan’s base oils consumption extended its rise in January, with domestic demand outpacing output for the first time in twenty months, tightening surplus supply at a time when Asia’s margins remain under growing pressure.

Total domestic demand rose to 162,000 kilolitre (143,000 tonnes) in January, up 17% year on year and climbing for a fourth straight month, METI data showed.

The lack of a matching rise in domestic output or imports left Japan's blenders and buyers drawing on existing stocks to meet the higher consumption levels.

Key Highlights

·         Japan’s January demand surge followed a simultaneous rise in automotive and industrial oils consumption in December, with both segments expanding together for the first time since August 2022.

·         Demand growth mirrored a recovery in Japan’s industrial production, which rose in January for the fourth time in five months.

·         Base oils output fell 3% year on year to a five-month low, diverging from consumption growth and leaving domestic demand outpacing production for the first time in twenty months.

·         Japan’s asphalt production rebounded to a five-month high and unusually exceeded base oils output, pointing to a shift in refiners’ yield economics.

·         Lower base oils output followed a slide in Asia’s Group I base oils margins through January, with the weakness extending into February.

·         Japan’s base oils exports dipped to a six-month low, curbing spot cargo availability in the broader Asia market.

Market Repercussions

A pick-up in Japan’s spot base oils exports late last year added to Group I availability across Asia and to pressure on regional prices.

The combination of falling output, lower exports and higher asphalt production point to moves to cut surplus supply and support margins.

Tighter domestic balances reduced Japan’s surplus, curbing its exposure to a regional market where base oils margins trended lower in January.

That pressure extended into February, when Lunar New Year holidays dampened activity in markets such as China.

A sustained slowdown in surplus volumes from Japan would ease further price pressure at a time when Asian demand is likely to firm ahead of the spring oil-change season.

It could also amplify any drop in availability caused by supply disruptions in the Middle East.