Asia base oils – week of June 26: Demand outlook

·        Except for China, markets in Asia mostly keep interest rates steady amid easing concern about high inflation.

·        Regional blenders face incentive to keep stocks lower ahead of seasonal slowdown in demand during third quarter and expectations of ready availability of supply.

·        China’s June automobile sales show signs of falling from May and year on year; yoy contraction would be first in five months.

·        China’s base oils demand strong enough to absorb more of its rising domestic supply and trigger firmer prices relative to diesel.

·        China’s base oils demand weak enough not to require large volumes of additional supplies from overseas refiners.

·        Trend points to Chinese demand that is firmer than Q2-Q4 2022, still weaker than before Q2 2022.

·        Surge in Chinese imports of Group III supplies from Mideast Gulf points to firmer demand for supplies for which China remains structurally short.

·        China’s May base oils exports fall to four-month low, adding to signs of firmer demand for domestic supplies.

·        Trend suggests regional refiners will need to target other markets instead, as they did last year.

·        Europe could be attractive target for Group II supplies from northeast Asia as widening Group II price premium to Asia-Pacific prices makes arbitrage more feasible.

·        Shipment of larger Group III volumes from Mideast Gulf to China also point to more muted buying interest/sufficient premium-grade supply in Europe/US.

·        Weaker Chinese demand for Asia-Pacific supplies and less attractive arbitrage from Asia to Americas cuts the number of outlets for surplus Asia supplies compared with last year.

·        South Korea’s rising May base oils exports to SE Asia helps to cover for plant maintenance work in the region in Q2 2023, partially balance out weaker demand in China.

·        Fall in South Korea's May exports to SE Asia from Q1 2023 levels reflects weaker regional demand even with temporary boost in demand for alternative supplies.

·        India’s rising imports of Group III 4cst base oils this year contrast with low total import volumes.

·        Trend reflects strong demand for supplies for which India is structurally short, and for supplies to produce high-quality engine oils.

·        India’s structural shortage of Group III base oils is set to ease in the coming year as new domestic production capacity comes online.

·        India’s demand for overseas base oils supplies often holds firmer than expected in Q3 despite slowdown in lube demand during monsoon season.

·        Trend typically reflects opportunistic moves to procure cargoes at competitive prices and need to lock in supplies from August for delivery in late Q3 in preparation for rise in demand in Q4.

·        India’s demand for overseas supplies likely to follow similar trend over coming months.