Asia base oils - week of Oct 16: Supply outlook

·        Asia’s base oils supply likely to stay lower than usual in face of regional plant maintenance-work.

·        Firmer base oils margins curb incentive to cut run-rates, but margins remain lower than usual.  

·        China’s Shandong diesel price premium to crude oil falls back, stays close to lower end of range over past year.

·         China’s more muted diesel values and firmer domestic base oils prices versus diesel could incentivize refiners to bring more capacity back online.

·        Domestic refiners likely to hold off such moves for now to assess sustainability of recovery in base oils values.

·        China’s September base oils output stays unusually low as Group II output falls.

·        Domestic Group II output falls even ahead of seasonal pick-up in demand from end-Q3 2023.

·        Lower output suggests refiners responded to weak margins by delaying moves to raise production.

·        Trend leaves unusually large volume of latent production capacity offline for extended period.

·        Asia’s August base oils supply rebounds to five-month high as rise in South Korea’s output outweighs slowdown in other markets like Japan and India.

·        Rebound in supply coincides with seasonal slowdown in demand, raising prospect of more rapid rise in surplus volumes.

·        More limited supply surplus at start of Q3 2023 likely to curb any immediate impact of higher production.

·        Prospect of slump in base oils supply from Taiwan throughout most of Q4 2023 also set to curb any supply-build.

·        Lack of any significant supply-surplus in Q4 2023 would contrast with same time last year and curb flow of arbitrage shipments to markets like Africa and Latin America.

·        South Korea remains Pakistan’s largest supplier in August even as shipment volumes fall.

·        Trend marks sustained surge in South Korea’s share of Pakistan’s base oils market and drop in Singapore’s share in recent years.

·        Trend leaves South Korean refiners well placed to tap any sustained recovery in Pakistan’s lube and base oils demand.