S Korea's Nov base oils exports to India hold firm

South Korea’s base oils exports to India held firm in November, pointing to healthy availability of supply even with lower-than-expected arbitrage shipments from the US.

Signs of growing supply options gave buyers in India more leverage to procure smaller volumes more frequently as they targeted increasingly competitive prices for overseas shipments.

South Korea’s base oils exports of 88,000 tonnes to India in November edged down from 91,500 tonnes in October, government data showed.

The volume was still up sharply from less than 50,000 tonnes in September, when maintenance work began on a key base oils unit in South Korea.

The maintenance work ended at end-October.

South Korea’s higher exports in October and November highlighted the growing importance of India as a key outlet at a time when demand in the rest of Asia faced a seasonal slowdown.

A less feasible arbitrage also curbed flows to more distant markets like the Americas, adding to the importance of outlets like India.

Healthy supply volumes and weak demand in other markets in turn boosted the incentive for Asia-Pacific refiners to limit arbitrage opportunities to India from other sources like the US.

Steadier US base oils export prices in recent weeks and a rise in US arbitrage shipments to Africa helped to limit flows from the country to India in the fourth quarter of the year.

That reprieve could change if US export prices were to resume their slide in the coming weeks, making the arbitrage to India more feasible.

Refiners in markets like South Korea would then face the dilemma of whether to maintain their cargo price levels or their supply volumes.

Maintaining their price levels would make more feasible and attractive a pick-up in arbitrage flows from the US.

Such a move could be more attractive if refiners had other outlets to move supplies to early next year.

Maintaining their supply volumes would entail moves to curb the flow of arbitrage shipments from other markets like the US.

Such a move could be more attractive if demand in Asia-Pacific stays lower for longer early next year.

Maintaining prices and supply levels, even when demand in Asia-Pacific remained lower, could by contrast trigger a further rise in surplus supply.

Such a scenario would provide buyers in India with additional leverage over price and supply options.