Asia base oils - week of July 17: Demand outlook

·        Seasonal slowdown in demand during Q3 could be more muted than expected amid signs of steadier lube consumption and as higher feedstock costs dampen prospect of lower prices.

·        Asia’s May lube demand unexpectedly rises for first time in four months amid pick-up in consumption throughout region.

·        Pick-up in lube demand likely to be more sustainable than other regions like Latin America, where high inflation incentivized consumers to bring forward expenditure.

·        Pick-up in lube demand could curb buildup of regional base oils supplies during Q3 2023, especially if base oils output holds at lower levels.

·        Pick-up in regional lube demand could help balance out weaker-than-expected demand from China.

·        China’s lube demand likely to stay weak over coming weeks even as base oil feedstock costs rise.

·        China’s base oils demand could get boost in medium term amid prospect of drop in availability/competitiveness of industrial white oils supplies following tax-rule changes.

·        Taiwan’s June base oils exports to China fall to eleven-month low, reflecting the demand weakness.  

·        Drop in Taiwan's exports to China triggers rise in shipments to southeast Asia and India and prospect of more such cargoes over coming months.

·        Surge in Taiwan’s shipments to southeast Asia in Q2 2023 helps to cushion impact of scheduled plant maintenance work in the region during that period.

·        Rise in Taiwan’s shipments to southeast Asia reflect relatively steady demand in the region, especially compared with China.

·        Steady flow of shipments from Taiwan moved to Americas in 2022, tapping open arbitrage.

·        Closed arbitrage to Americas makes that outlet less feasible this year, leaving more supplies for SE Asia, India and Mideast Gulf.

·        Plant maintenance work in Taiwan later in year unlikely to have impact on export volumes at least for next month.

·        Plant maintenance work in Taiwan later in year set to coincide with seasonal pick-up in demand in China.

·        India’s lube demand rises in June for first time in five months.

·        India’s firmer demand coincides with signs of improvement in lube consumption in southeast Asia.

·        Steadier consumption in those markets boosts incentive for refiners to target those markets rather than China.

·        Philippines’ May lube/base oil imports rises for first time in three months, adding to signs that regional slowdown may be bottoming out.

·        Indonesia’s May base oils imports rebound, adding to signs of firmer demand in southeast Asia.

·        Southeast Asia’s May base oils imports rise for first time in three months.

·        Extension of that trend increases incentive for refiners to prioritize regional markets outside China.