Asia base oils - week of May 22: Demand outlook

·        China’s weaker-than-expected economic recovery curbs benefit for rest of Asia-Pacific.

·        Chinese demand for regional base oils supplies likely to be firmer in Q2 2023 than year-earlier levels, but still weaker than usual.

·        China’s base oils demand faces seasonal slowdown heading into summer, unless one-off events like stimulus packages boost economic/industrial activity.

·        China’s firm demand for base oils from South Korea in April coincides with domestic plant maintenance.

·        Strength of demand remains unclear when the plant maintenance ends.

·        State of Chinese demand for supplies from markets like Taiwan and South Korea set to be a key factor determining the availability of surplus supplies that refiners need to clear through more distant markets over the coming months.

·        Asia-Pacific lube demand likely holds steady in May-June, at lower level than end-Q1 2023.

·        Demand then set to face seasonal slowdown in Q3 2023.

·        Trend leaves blenders with incentive to trim base oils inventories before upcoming slowdown.

·        Blenders’ lower base oils requirements give them more leverage to hold off procuring feedstock supplies at prices that they deem to be too high.

·        India’s higher April base oils imports coincide with seasonal dip in domestic demand – reflecting buyers’ willingness to procure more supplies and increase stocks when prices are deemed competitive, and vice versa.

·        Indian buyers’ higher stocks, and prospect of more arbitrage shipments moving to the country over coming weeks, curb their urgency to lock in more supplies.

·        Lower crude and gasoil prices raise the prospect of base oils prices falling below levels at which buyers procured recent supplies, complicating subsequent procurement plans.

·        India’s rising very-light grade base oils imports in April likely reflect stock-replenishment to meet lube production requirements.

·        India’s very-light grade imports remain much lower than during 2021 and 1H 2022.

·        India’s demand for very light grades likely to remain at current lower levels.