Asia base oils - week of Sep 25: Demand outlook

·        Asia’s base oils demand likely to be mixed, with muted Chinese demand, steady buying interest in southeast Asia and firmer demand in India.

·        Signs of balanced-to-tight regional supply and refiners’ squeezed margins likely to support demand as buyers face risk of even higher prices if they hold back.

·        Asia’s lube demand likely to get seasonal boost this and next month even as it lags year-earlier levels.

·        Seasonal pick-up in consumption likely to sustain steady base oils demand from regional blenders.

·        Steady demand would coincide with regional plant maintenance work and plant closure over coming months.

·        Regional blenders likely already began replenishing stocks earlier in Q3 2023, curbing need to procure large volumes in coming months.

·        More major lubricants blenders in China announce moves to raise finished product prices from beginning or middle of October in response to rising costs.

·        Move could trigger temporary pick-up in demand as end-users lock in supplies before new prices take effect.

·        Rise in lube prices may face push-back, with China’s lube demand staying more muted than usual at a time of year when consumption typically gets a seasonal boost.

·        Weaker-than-usual lube demand and expectations of sufficient base oils supply add to domestic blenders’ preference to maintain low stocks and to replenish inventories with smaller volumes.

·        Trend keeps pressure on China’s base oils demand.

·        Trend curbs domestic refiners’ leverage to raise prices in response to weak margins and triggers additional or extended plant maintenance work.

·        China’s base oils imports fall to one-year low in August, despite low domestic base oils output.

·        Trend suggests domestic blenders were more comfortable with the risk of holding lower stocks ahead of seasonal pick-up in demand at end Q3 2023.

·        That preference suggests blenders were concerned that seasonal pick-up in demand would lag expectations, and that supply would remain sufficient.

·        Any seasonal pick-up in demand remains muted so far, reflecting those concerns.

·        China’s importers show little sign of lining up alternative supplies to cover for slowdown in imports from Taiwan ahead of and during plant maintenance work in October.

·        Singapore’s August base oils exports to China rise from trough in July, show little sign of rising any higher in September.

·        Muted moves to line up additional shipments to China add to signs of weak demand in the country extending through Q4 2023.

·        China’s weak demand contrasts with sustained strength in Australia, whose July lube demand rises for twelfth month on sustained strength of industrial oils consumption.

·        Trend contrasts with many other markets in Asia, where PCMO demand remains firmer than industrial oils.

·        Trend boosts attraction of boosting share of Australia’s base oils market in view of different feedstock requirements for industrial oils vs engine oils.

·        India’s base oils demand likely to get boost from seasonal pick-up in consumption and drop in supply.

·        India’s August base oils supply falls to eight-month low as lower output coincides with drop in imports.

·        Plant maintenance work likely to keep domestic output lower than usual in September.

·        Lower output boosts blenders’ need to lock in more supplies from overseas sources.

·        India’s August very-light grade base oils imports fall to lowest in more than two years, even with wider-than-usual retail diesel premium to base oil prices in July and August.

·        Wide diesel premium to base oil prices previously often spurred stronger demand.

·        Lower imports instead reflected tighter supply from Qatar and South Korea, where plant-maintenance work impacted July-loading shipments.

·        Lower imports curbed Indian buyers’ opportunity to boost stocks ahead of an expected rise in base oil prices, which subsequently materialized.

·        Narrower diesel premium to base oils prices in September could curb buyers’ interest in additional supplies of very-light grade base oils.

·        Narrow gap between diesel and very-light grade base oils prices could also extend drop in overseas shipments of very-light grade base oils to India.

·        India’s demand for Group III 4cst base oils shows signs of holding firm, with imports in August edging down because of plant maintenance work in South Korea in July.

·        India’s demand for Group III 8cst base oils likely to stay weak unless prices get more competitive vs Group II heavy grades.

·        Slump in India’s Group III 8cst imports coincides with 8cst prices holding at premium to imported Group II N500 cargo prices, ICIS data shows.

·        India’s base oils imports likely to get boost in September from pick-up in South Korea’s base oils exports to the country in August.

·        Rise in flows from South Korea to India likely to continue amid rising supply and waning competition from arbitrage shipments from other sources.

·        Pakistan’s steadier base oils imports in three months to July coincide with improving domestic lube demand.

·        Firmer demand likely to benefit South Korean base oils suppliers especially as their share of Pakistan’s base oils imports continues to rise.

·        Pakistan’s July base oils supply, or domestic output and imports combined, rises for second time in three months, adding to signs of steadier demand.