· China’s domestic Group II prices weaken versus competing fuel prices and versus other regions over past month.· China’s base oils prices weaken at a time of year when a seasonal rise in lube consumption typically boosts base oils demand.· China’s base oils prices weakness follows a sharp rise in supplies at the start of the year that precedes a round of Group I and Group II plant maintenance work in the country in March 2024.· China’s price weakness points to more-than-enough supplies and muted demand for those supplies.· China’s domestic Group II light and heavy-grade prices mostly weaken versus Shandong diesel prices throughout March 2024..· Price weakness contrasts with surging base oils premium to diesel prices during same period last year.· Lower base oils premium to diesel points to weak supply-demand fundamentals that limit sellers’ leverage to raise prices..· China’s domestic Group II price for imported base oils strengthens slightly versus Group II prices for domestic supplies in Feb 2024, before weakening in March 2024..· Price premium for imported base oils rises only slightly even with slide in Taiwan’s exports to China in Feb 2024..· Muted price response suggests supplies are more than sufficient even with drop in shipments from Taiwan..· China’s net base oils supply, or domestic production and net imports, rises by more than 30pc year-on-year to close to 1.20mn t in first two months of 2024..· Rising supply and muted demand cuts requirements for additional overseas supplies.· China’s domestic Group II light and heavy-grade price premium to fob Asia prices trends lower in recent weeks..· Shrinking premium reduces attraction of lining up arbitrage shipments from Asia to China.· Less feasible arbitrage contrasts with rising CFR India Group II price premium to FOB Asia prices through most of March 2024..· Arbitrage to move Group I bright stock to China stays feasible.· But premium of CFR NE Asia Group I bright stock price over CFR India bright stock narrows steadily since mid-Jan 2024.· Trend points to rising competition and prices from India for bright stock supplies.· Price trends point to more muted buying interest in China and firmer demand in other markets.· China’s more muted demand and firmer price trends in other parts of Asia incentivize region’s refiners to continue to focus on other markets rather than China.· China’s more muted demand only likely to have a larger impact on regional market if country’s exports were to rise sharply.· So far, that hasn’t happened..Global base oils margins outlook: Week of March 25
