Asia base oils - week of Dec 11: Supply outlook

·        Asia’s base oils supply faces prospect of rising following expected completion of plant maintenance, addition of arbitrage shipments and weaker demand.

·        US Group II export prices flip to discount to cfr India prices, boosting feasibility of more arbitrage shipments to that market.

·        More competitive US export prices complicate feasibility of moving more Asia shipments to Latin America.

·        China’s domestic Group II light-grade prices remain weak versus fob Asia prices, complicating arbitrage flows to China.

·        Cargo of Group II base oils set to load from Taiwan in coming days.

·        Shipment coincides with expected restart of Group II base oils unit in 1H Dec 2023.

·        Supplies from Japan show signs of falling sharply, while flows from Europe to southeast Asia pause over past month.

·        Trend likely to support firmer Group I prices relative to other grades.

·        China’s November base oils output rises to twenty-month high on higher Group I/Group II production.

·        China’s higher base oils output covers more of the country’s domestic requirements, curbing attraction/need for more supplies from overseas markets.

·        Domestic buyers’ preference to maintain low stocks adds to attraction of procuring supplies from domestic refiners.

·        Trend suggests that China’s demand for overseas base oils supplies is likely to stay muted even if demand improves over the coming months.

·        Japan’s October base oils exports fall to two-year low following closure of second base oils plant.

·        Exports fall more steeply than Japan’s base oils production and demand in Oct 2023.

·        Trend points to sufficient supply to cover domestic requirements, with exports bearing the main impact of the plant closure.

·        Slump in exports to Singapore and South Korea raises prospect of those markets seeking alternative supplies of Group I base oils.

·        Tight regional availability of Group I base oils incentivizes those markets to instead move to replace Group I base oils with premium-grade base oils where possible.

·        Even that move would require large volumes of additional supplies from other sources.

·        Thailand’s October base oils supply stays low amid lower domestic output and imports.

·        Thailand’s lower base oils supply coincides with rising domestic base oils and lube demand.

·        Its lower base oils supply curbs its ability to cover for slump in Group I supplies from Japan.

·        Any sustained pick-up in country’s domestic demand could complicate further its ability to provide additional supplies to cover for loss of supplies from Japan.

·        Thailand’s October base oils supply still exceeds demand for first time in three months as slump in exports outweighs low domestic production.

·        Wave of exports to markets like UAE and India in Sept 2023 especially had left Thailand’s supply more balanced.

·        More balanced supply curbed pressure on Thailand’s producers to accept base oils prices that made feasible more arbitrage shipments at start of Q4 2023.

·        Small size of supply surplus in Oct 2023 continued to curb that pressure.

·        Any rise in Thailand’s base oils output in Nov-Dec 2023 could speed up a rise in country’s supply surplus and subsequent need to clear those volumes through the export market.

·        Indonesia’s October Group III base oils exports hold steady to Europe, pause to China for fourth month.

·        Shipments to Europe hold steady despite pressure on Group III prices in European market.

·        Price pressure reflects more the plentiful availability of supplies with no or some OEM approvals.

·        Prices for supplies with OEM approvals remain much firmer, reflecting the balanced-to-tighter fundamentals for those supplies.

·        Sustained pause in Indonesia’s Group III base oils exports to China is longest since 2017.

·        Sustained pause could point to change in strategy.

·        Pause coincides with rise in China’s Group III base oils production capacity following start-up of new plant.

·        Singapore’s base oils imports stay lower than usual in recent weeks amid ongoing pause in shipments from Japan, slowdown in supplies from China.

·        Any recovery in supplies from Japan is likely to remain muted following closure of Group I plant in Oct 2023.

·        Drop in imports from Japan increases need for alternative supply source to cover for drop in volumes.

·        Most recent shipment from Italy to Singapore was more than a month ago.

·        India’s base oils imports show signs of surging in Nov 2023 on back of rise in supplies from South Korea and US.

·        Sustained wave of shipments from South Korea to India likely to sustain high imports in Dec 2023.

·        Asia’s October base oils exports rise even with fall in shipments from Taiwan, Japan and Thailand.

·        Shipments rise even with limited overhang of surplus supplies to clear from Q3 2023.

·        Shipments rise because of rebound in South Korea’s exports in Oct 2023.

·        Trend highlights impact of South Korea’s exports on regional supply and in determining size of any regional supply-build at end-Q4 2023 and in early 2024.