Asia base oils - week of Dec 4: Demand outlook

·        Asia’s base oils demand faces slowdown at year-end followed by rise in requirements from early 2024.

·        Base oils prices fall more steeply for cfr India/domestic China Group II prices than for fob Asia prices.

·        Trend points weaker Group II supply-demand fundamentals in key outlets, puts pressure on fob Asia prices to respond in kind.

·        Signs of downward price-pressure could add to blenders’ preference to hold off for now.

·        China/India Group I bright stock premium to fob Asia prices holds firmer, pointing to steadier demand for that product.

·        Asia’s lube demand faces strong seasonal rise in Q1 2024, when quarterly consumption typically peaks each year.

·        Seasonal rise in demand would absorb more of Asia’s base oils supplies, which are likely to rise at end-2023 and early next year.

·        Firmer demand in Q1 2024 would leave supply-demand fundamentals more balanced, limit the need to move large volumes to other more distant markets.

·        China’s demand continues to show mixed signals, mirroring country’s economic indicators.

·        China’s domestic Group II light-grade price premium to diesel prices extends fall following strong surge to mid-Nov 2023.

·        Lower price-premium points to supply-demand fundamentals that are too weak to avoid pressure from lower feedstock costs.

·        More mixed demand signals follows fall in October base oils demand to ten-month low.

·        Lower demand points to priority of consuming existing supplies first to maintain low stocks.

·        Strategy points to concern about demand outlook and expectations of easy access to supply as and when required.

·        Strategy leaves domestic buyers exposed to any stronger-than-expected pick-up in demand over the coming months.

·        Buyers remain more comfortable with that risk.

·        China’s demand likely to increase more sharply from 2H Feb 2024, following Chinese new year holidays.

·        Singapore’s base oils exports to China extend rise last week and over month of Nov 2023.

·        Sustained rise in shipments follows Singapore’s higher exports to China in Oct 2023.

·        Rise in shipments to China, and fall in Singapore’s base oils imports from China over month of Nov 2023, point to pick-up in demand following October slowdown.

·        Any pick-up in Chinese demand would coincide with signs of steady base oils/lube consumption in Japan, which rises in Oct 2023 for third time in four months.

·        Firmer demand in northeast Asia would consume more of the region’s base oils supplies, cut volumes available for export.

·        Vietnam’s October base oils imports rise to thirteen-month high.

·        Vietnam’s base oils imports lag year-earlier levels in 1H 2023, exceed year-earlier levels so far in 2H 2023.

·        Trend adds to signs of recovery in demand throughout southeast Asia and increases importance of the region as outlet for Asia’s refiners.

·        Sharp slowdown in Singapore’s base oils exports to India continues throughout month of Nov 2023.

·        Slowdown in shipments coincides with signs of sustained pick-up in flows from South Korea to India, rise in arbitrage shipments from US to India, and pick-up in flows from Mideast Gulf to India.

·        Falling prices, signs of more plentiful supply and more plentiful supply options give Indian buyers more leverage to hold back even amid steady domestic demand.