Asia base oils demand outlook: Week of 17 March

·         Asia’s base oils demand could ease, with buyers having already covered requirements for peak-demand season in month of March.

·         Typical slowdown in consumption at start of second quarter of year curbs urgency for blenders to replenish supplies.

·         Expectations of improving availability in Q2 2025 add to attraction of holding off moves to replenish stocks.

·         Increasingly high base oils margins expose prices to risk of adjustment if supply-demand fundamentals were to weaken from levels earlier in the year.

·         Increasingly high Group II heavy-grade prices boost incentive for blenders to use more Group I supplies instead.

·         China’s domestic Group II heavy-grade price narrows vs domestic Group I base oils and vs FOB Asia Group II prices, pointing to such a trend.

·         Supply flows and price signals point to signs of steadier consumption in China in recent weeks, especially for Group I base oils.

·         China’s domestic Group I brightstock premium to FOB Asia cargo price resumes rise, climbing to highest since end-Aug 2024.

·         Singapore’s base oils exports to China show signs of falling in Jan-Feb 2025 from year-earlier levels.

·         Singapore’s base oils exports to China then rebound in recent weeks.

·         Rise in shipments could reflect moves to cover for drop in supplies from other sources.

·         Rise in shipments coincides with plant maintenance work in China and in South Korea during March 2025.

·         Rise in shipments could alternatively reflect response to pick-up in outright demand.

·         China’s domestic base oils prices suggest any rise in shipments is more likely to be covering for drop in supplies rather than sharp rise in demand.

·         Any pick-up in requirements would follow drop in China's base oils output in Jan-Feb 2025, as well as lower shipment volumes to China from some key regional suppliers.

·         Taiwan’s base oils exports to China rise in Feb 2025 but still fall by more than 30% in Jan-Feb 2025 vs year-earlier levels.

·         Southeast Asia’s base oils demand could be more muted amid signs of strong pick-up in flows to the region in Jan-Feb 2025.

·         Rise in flows enables blenders to replenish stocks ahead of seasonal rise in demand from end-Q1 2025.

·         Pick-up in flows includes sustained rise in shipments from Taiwan to southeast Asia and India.

·         Firm demand in southeast Asia and India in turn provides Taiwan with valuable outlet for its supplies.

·         Pick-up in regional flows to southeast Asia includes recent surge in shipments from Singapore.

·         Rise in shipments from Singapore to southeast Asia shows signs of extending through March 2025.

·         Rise in shipments in March 2025 would cushion impact of any slowdown in flows from South Korea because of plant maintenance work.

·         Thailand’s lube demand rises in Jan 2025 at fastest pace in seven months.

·         Rise in lube demand adds to strong pick-up in lube consumption in other regional markets like Philippines at start of 2025.

·         Asia's firm lube consumption limits size of typical build-up of surplus base oils supplies at end-2024 and start of new year.

·         Firm consumption complicates regional blenders’ moves to replenish depleted stocks and prepare for seasonal pick-up in demand at end-Q1 2025.

·         Dynamic supports stronger-than-usual supply-demand fundamentals at start of the year.

·         That support could now start to wane following completion of stock-building ahead of seasonal rise in demand, and likely slowdown in consumption at start of Q2 2025.

·         India’s imported Group II base oils cargo price premium to FOB Asia price stays low, with N500 premium narrowing further.

·         Narrow premium complicates arbitrage, points to muted buying interest.

·         Muted buying interest would follow further rise in India’s lube demand in Feb 2025 for sixth time in seven months.

·         Rising lube consumption and muted demand for additional base oils supplies from overseas markets suggests that buyers are securing sufficient supplies to cover requirements and are holding off moves to build larger stocks.

·         Those moves to hold off could reflect unattractiveness of procuring additional supplies at high price levels.

·         The moves could also reflect expectations of improving availability of supply in the coming months.

·         Any such moves to maintain lower inventories would require more regular procurement of top-up supplies.

·         Any such moves could also put pressure on prices if recent supply-tightness in Asia begins to ease.

·         Pakistan’s base oils demand could get support after base oils supply falls to four-month low in Jan 2025, while lube demand rises.

·         Rising demand, and drop in supply from South Korea, provides opportunity for other sources like US and Taiwan to boost shipments to Pakistan.

·         Imports from US duly surge in Jan 2025 as share of Pakistan’s total imports.

·         Rise in flows from other sources raises prospect of complicating South Korea’s role as Pakistan’s largest source of overseas supplies.

·         Group II heavy-grade base oils continue to account for unusually large share of Pakistan’s total imports, providing valuable outlet for markets like US.

·         US duly accounts for most of Pakistan’s Group II heavy-grade imports in Jan 2025.