Asia base oils – week of June 12: Demand outlook

·        China’s base oils demand shows ongoing signs of weakness, with closed arbitrage for Asia-Pacific supplies and muted rise in supply.

·        Trend increasingly repeats similar pattern in 2022, raising prospect of more Asia-Pacific supplies eyeing other outlets instead of China.

·        Most of the rise in China’s supply in May reflected higher output following the completion of plant maintenance work rather than a response to a change in demand.

·        China’s weak demand leaves more supplies from Thailand staying in southeast Asia or targeting other outlets like India and Mideast Gulf during Q2 2023.

·        Slump in Indonesia’s base oils exports to China in first four months of 2023 highlights extend of its demand weakness.

·        China’s demand weakness removes key support for regional bright stock prices – which typically peak each year at end Q1/early Q2.

·        Regional base oils demand weakness extends to southeast Asia.

·        Indonesia’s lower April base oils imports add to region-wide slowdown in demand, curbing impact of plant maintenance in Q2 2023.

·        Any extension of slowdown in demand from year-earlier levels into Q3 2023 would compound impact of seasonal slowdown during that period.

·        Lower demand in southeast Asia compounds impact of slowdown in Chinese demand, could push regional refiners to target more distant markets with surplus supplies.

·        Any such moves may be more challenging this year than last year. 

·        Japan’s April base oils supply falls less than demand, triggering rise in surplus volumes.

·        Asia-Pacific region sees more widespread repeat of that trend, countering impact of plant maintenance work.

·        Japan’s base oils exports could hold steadier than expected if domestic demand falls, freeing up more surplus supplies to clear in overseas markets.

·        Sustained fall in Japan’s lube consumption in recent months raises prospect of drop in domestic base oils requirements.

·        Japan’s lower base oils imports so far this year tally with signs of lower domestic lube consumption.

·        Asia’s April base oils exports fall to lowest this year on drop in supply and lower demand.

·        Trend shows signs of continuing through Q2 2023.

·        Singapore’s four-week base oils exports stay range-bound so far this year, even with plant maintenance in Q2 2023 – adding to signs of steady supply.

·        Slowdown in Pakistan’s lube demand shows signs of gathering pace in Q2 2023.

·        Any sustained slowdown would have a disproportionate impact on demand for overseas supplies of Group II heavy grades, which typically account for large share of country’s base oils imports.

·        India’s May automobile sales rise for fourth time in five months, with demand expected to hold firm over coming months.

·        India’s May auto sales include 78pc rise in sales of three-wheelers on back of surging demand for electric-powered rickshaws.

·        India’s May lube demand extends protracted slowdown, contrasts with rising domestic base oils output.

·        Trend incentivizes blenders to hold lower stocks, gives them flexibility to replenish inventories with smaller volumes more frequently.

·        Lower demand, rising domestic supply and wave of arbitrage shipments from US leave blenders with leverage to turn down prices they deem to be too high.