Asia base oils - week of Dec 18: Demand outlook

·        Asia’s base oils demand likely to be mixed as low feedstock costs, expectations of rise in supply incentivize buyers to hold back.

·        Firm underlying lube consumption and prospect of seasonal rise in demand in Q1 2024 likely to prompt buyers to maintain sufficient inventories.

·        China’s domestic Group II prices extend gradual recovery vs fob Asia values to three-month high even with signs of pick-up in supplies from Taiwan.

·        Arbitrage to China stays hard to work, pointing to still-cautious demand, especially for overseas supplies.

·        Domestic China Group I bright stock premium to fob Asia prices holds firm after sustained recovery since June 2023, making that arbitrage more feasible.

·        India’s buyers could hold back, even amid firm domestic lube consumption, amid expectations of lower prices.

·        Asia’s lube demand edges down in Oct 2023 as slower consumption in India counters rising demand in northeast and southeast Asia.

·        Strength of demand in southeast Asia highlights attraction for regional refiners to tap that market.

·        Slowdown in India’s lube demand highlights that market’s growing impact on regional consumption.

·        Trend highlights attraction of tapping that market, as well as importance of developing other markets to spread exposure beyond key outlets.

·        Taiwan’s base oils exports to China almost halt in Nov 2023, following sharp slowdown in Oct 2023.

·        Pause in shipments contrasts with recovery in Taiwan’s exports to India in Nov 2023.

·        China is usually the destination for most of Taiwan’s exports during any plant maintenance work, when availability is tighter.

·        The shipment of more supplies to India instead points to unusually weak demand in China for overseas supplies.

·        Reviving domestic Chinese Group II prices versus fob Asia prices since early Nov 2023 point to gradual improvement in Chinese demand in recent weeks, even if to replenish depleted stocks.

·        South Korea’s base oils exports to Japan rise to eighteen-month high in Nov 2023.

·        Rise in shipments follows Japan’s closure of a Group I plant in Oct 2023, raising prospect of pick-up in country's demand for regional supplies to cover the shortfall.

·        Singapore’s weekly base oils exports rebound to southeast Asia and India, fall to China.

·        Fall in shipments to China could reflect temporary pause following recent rise in weekly exports to the country.

·        A more prolonged slowdown in shipments could reflect slower-than-expected domestic consumption in China.  

·        Surge in shipments to southeast Asia extends trend of growing focus on tapping rising demand in the region.

·        Rise in shipments to India could add to wave of supplies moving to the country from other sources.

·        Philippines’ October base oils/lube imports fall for eighth month, contrasting with firmer consumption in most other key markets in southeast Asia.

·        South Korea’s share of Philippines’ imports continues to rise sharply, while Singapore’s share falls.

·        South Korea’s refiners will need to replicate that trend in other markets in southeast Asia or face more reliance on other markets like China and India.

·        India’s November lube demand rises for sixth time in seven months amid strong economic growth.

·        Rise in lube demand lags surge in India’s base oils imports in Nov 2023.

·        Disconnect between supply and demand raises prospect of growing build-up of surplus supplies.

·        Any such trend would add to blenders’ ability and preference to delay procurement of additional supplies.

·        Expectations of healthy availability and lower prices already incentivize buyers to hold back.