Asia base oils supply outlook: Week of 12 Aug

·        Asia’s base oils price premium to feedstock/diesel prices stays high, incentivizing refiners to maintain or raise output.

·        Arbitrage stays shut for shipments to Asia from other markets like US and Europe.

·        Arbitrage stays more feasible to move shipments from Asia to the Americas.

·        Any such shipments could help to cut volume of surplus light-grade supplies in Asia.

·        Signs of rebound in Asia’s base oils exports in July 2024 likely reduce size of any surplus carried into start of Q3 2024 from June 2024.

·        Firm base oils margins, even with rise in exports in July 2024, point to demand fundamentals that were firm enough to absorb the supplies.

·        Taiwan’s base oils exports stay high so far in Aug 2024 but slow down from unusually high levels in July 2024.

·        Taiwan’s exports in Aug 2024 show signs of pick-up in shipments to China.

·        South Korea’s base oils exports show signs of slowing so far in Aug 2024 vs same period in July 2024.

·        Singapore’s base oils imports from China rise in late-July 2024 and early-Aug 2024, following slowdown in shipments during the previous month.

·        Singapore’s base oils exports show signs of reverting to more typical levels in recent weeks, following higher-than-usual in shipments in July 2024.

·        Singapore likely to take delivery of more supplies from US in coming weeks as exports from that market to the island-state extend rise to multi-year high in June 2024.

·        Rise in shipments adds to already-well-supplied Asia-Pacific market.

·        China’s paraffinic base oils output falls to nine-month low in July 2024 amid dip in Group I, Group II production.

·        Lower production coincides with and likely supports relatively firm base oils values vs domestic diesel prices, and increasingly firm Group II heavy-grade values.

·        Lower output and a more feasible arbitrage to China coincide with rise in supplies from other major regional producers such as Singapore in July 2024.

·        China’s Group III base oils output rises to multi-year high in July 2024, contrasting with drop in Group I/II output.

·        Trend could reflect stabilisation of production and specifications following start-up of new Group III capacity in past year, raising prospect of further rise in Group III output.

·        Domestic China Group III price premium to Group II prices narrows throughout this year, but much less sharply than in US and Europe.

·        Still-wide gap between domestic Group III and Group II prices incentivizes domestic refiners to produce more Group III base oils.

·        Any extension of the trend could curb China’s requirements for overseas supplies of Group III base oils.

·        Thailand’s Group I base oils output edges down in June 2024 from month earlier, falls for seventh month from year-earlier levels.

·        Output falls even with firm regional Group I base oils margins and demand.

·        Lower output could reflect refiners responding more to domestic rather than regional demand.

·        Lower output contrasts with firm domestic demand and rising imports.

·        That dynamic suggests rising demand is boosting requirements for premium-grade base oils rather than Group I base oils.

·        Either way, lower output compounds impact of drop in Japan’s base oils output and exports so far this year, adding to Asia’s tighter Group I supply.

·        South Korea remains Thailand’s largest supplier of base oils imports in H1 2024, with Singapore the second largest.

·        Imminent rise in India’s base oils production capacity over the coming year makes even more important markets like Thailand for refiners in South Korea and Singapore.

·        India’s base oils imports show signs of staying lower in July 2024.

·        Lower imports would coincide with planned plant maintenance work in India in July 2024.

·        Lower imports and output raises prospect of India's base oils supply shortfall vs demand extending into July 2024.