Asia base oils - week of July 24: Demand outlook

·        Asia’s lube demand shows signs of shallower-than-expected seasonal slowdown in Q3 2023, and firm revival in demand from end-Q3 2023.

·        Base oils demand anticipates, so precedes state of lube demand.

·        Trend would support firmer base oils demand in coming weeks to meet demand at end-Q3 2023/early Q4 2023.

·        Trend likely to get further support if buyers deem regional supply to be balanced and expect prices to avoid the kind of sharp correction they faced in Q3 2022.

·        Such a scenario partly depends on regional refiners’ ability to avoid supply-build over coming weeks.

·        China’s June base oils imports stay lower than usual as post-lockdown economic recovery lags expectations.

·        China’s lube demand likely to remain muted over coming weeks during seasonal slowdown.

·        Domestic blenders likely to eye replenishment of feedstock supplies to meet expected seasonal rise in demand from September.

·        China’s auto sales flatline in 1H July year on year, likely to get boost from stimulus measures.

·        South Korea’s June base oils exports fall to China, rise to Japan.

·        Trend reflects contrasting demand dynamics in both countries, highlighting need for regional refiners to continue to diversify away from China.

·        Trend suggests slower-than-expected Chinese demand may have smaller-than-expected impact on regional refiners.

·        South Korea’s June base oils exports to southeast Asia hold steady, adding to signs of such a dynamic.

·        Trend highlights importance of, ongoing growth and signs of improving demand in southeast Asia market.

·        Key role of southeast Asia as growth market leaves refiners situated in the region better placed to tap that growth. 

·        India’s imports of wave of US Group II base oils in June coincides with/balances out impact of plant maintenance work in Singapore and South Korea.

·        India takes delivery of several more shipments from US in July, when plant maintenance in Singapore already ended and plant maintenance in South Korea was set to end.

·        Any further extension of US shipments to India during Q3 2023 could complicate flows from Asia to India.

·        Refiners would then have choice of redirecting supplies to other markets, or cutting production, or cutting prices.

·        Very-light grade base oils account for small share of recent US shipments to India.

·        Trend suggests US refiners are clearing very-light grade supplies through other markets.

·        Trend suggests US shipments have little impact on main sources for India’s very-light grade base oils market - South Korea, Mideast Gulf and Spain.

·        Rising feedstock costs could incentivize those suppliers to redirect very-light grade supplies back into their diesel pool instead.

·        Singapore’s rising base oils exports to southeast Asia in four weeks to July 19 contrast with sliding shipments to China.

·        Trend reflects ongoing structural shift in Asia-Pacific supplies to southeast Asia and away from China.