· Asia’s base oils supply faces prospect of rising faster than demand on completion of plant maintenance, open arbitrage from US, and less workable arb to regional outlets, ICIS data shows.· Open arbitrage from US to markets like India sustains attraction of moving more supplies to the region.· Less workable arbitrage from Asia to outlets like China and India, as well as to Americas, curbs flows from the region.· Rising Chinese supply in Nov 2023 and expected restart of Group II plant in Taiwan in Dec 2023 add to regional supply.· Asia’s base oils producers face option of cutting output and/or cutting prices to limit rise in surplus supply.· Lower base oils output could limit downward pressure on regional prices and margins, adding to attraction of such a move.· More limited downward pressure on prices and margins could help to sustain an open arbitrage from the US.· Those flows would counter the benefit of lower regional output and put pressure on prices and margins in the medium term.· A sharp fall in US export prices in recent weeks already made that arbitrage even more attractive..· An open arbitrage in Q4 2023 followed a swathe of arbitrage shipments from US to India in first-half 2023..· Major plant maintenance in Asia in Q2 2023 and Q4 2023 cut supply during those periods.· The drop in supply to markets like India supported the flow of additional arbitrage shipments to the region.· The expected completion of plant maintenance in Asia by end-Q4 2023 raises the prospect of a rise in regional output and supply early next year.· A rise in supply makes less attractive the shipment of additional arbitrage cargoes to the region from markets like the US.· Lower fob Asia prices rather than lower output could be more effective at curbing such flows and a subsequent rise in regional supply.· Lower Asia prices could squeeze margins in the short term, cutting the attraction of such a move.· Lower Asia prices could help to support firmer margins in the medium-to-long term.· Lower prices would make more complicated the flow of arbitrage shipments to the region from markets like the US.· Lower prices would make less complicated the flow of arbitrage shipments to markets like China and India.· The arbitrage to those markets became less attractive in recent weeks after cfr India/NE Asia prices fell faster than fob Asia prices..· Squeezed margins caused by lower prices could also incentivize Asia’s refiners to cut production.· Lower production would be in response to lower prices rather than in response to rising supply.· Lower production and lower prices would support an open arbitrage to regional outlets.· Lower production and lower prices would make more complicated the arbitrage to those regional outlets from more distant sources like the US.· A slowdown in arbitrage shipments from sources like the US would in turn curb the size of a supply-build in Asia..Global base oils - week of Dec 11: Price outlook - margins
· Asia’s base oils supply faces prospect of rising faster than demand on completion of plant maintenance, open arbitrage from US, and less workable arb to regional outlets, ICIS data shows.· Open arbitrage from US to markets like India sustains attraction of moving more supplies to the region.· Less workable arbitrage from Asia to outlets like China and India, as well as to Americas, curbs flows from the region.· Rising Chinese supply in Nov 2023 and expected restart of Group II plant in Taiwan in Dec 2023 add to regional supply.· Asia’s base oils producers face option of cutting output and/or cutting prices to limit rise in surplus supply.· Lower base oils output could limit downward pressure on regional prices and margins, adding to attraction of such a move.· More limited downward pressure on prices and margins could help to sustain an open arbitrage from the US.· Those flows would counter the benefit of lower regional output and put pressure on prices and margins in the medium term.· A sharp fall in US export prices in recent weeks already made that arbitrage even more attractive..· An open arbitrage in Q4 2023 followed a swathe of arbitrage shipments from US to India in first-half 2023..· Major plant maintenance in Asia in Q2 2023 and Q4 2023 cut supply during those periods.· The drop in supply to markets like India supported the flow of additional arbitrage shipments to the region.· The expected completion of plant maintenance in Asia by end-Q4 2023 raises the prospect of a rise in regional output and supply early next year.· A rise in supply makes less attractive the shipment of additional arbitrage cargoes to the region from markets like the US.· Lower fob Asia prices rather than lower output could be more effective at curbing such flows and a subsequent rise in regional supply.· Lower Asia prices could squeeze margins in the short term, cutting the attraction of such a move.· Lower Asia prices could help to support firmer margins in the medium-to-long term.· Lower prices would make more complicated the flow of arbitrage shipments to the region from markets like the US.· Lower prices would make less complicated the flow of arbitrage shipments to markets like China and India.· The arbitrage to those markets became less attractive in recent weeks after cfr India/NE Asia prices fell faster than fob Asia prices..· Squeezed margins caused by lower prices could also incentivize Asia’s refiners to cut production.· Lower production would be in response to lower prices rather than in response to rising supply.· Lower production and lower prices would support an open arbitrage to regional outlets.· Lower production and lower prices would make more complicated the arbitrage to those regional outlets from more distant sources like the US.· A slowdown in arbitrage shipments from sources like the US would in turn curb the size of a supply-build in Asia..Global base oils - week of Dec 11: Price outlook - margins