Asia base oils supply outlook: Week of 16 Sept

·        Asia’s base oils prices extend rise vs feedstock/competing fuel prices.

·        Strong and sustained incentive to maximise base oils output contrasts with signs of limited build-up of surplus supplies so far.

·        Even so, high prices relative to feedstock prices likely to curb demand, improving supply balance.

·        Arbitrage from Asia to Americas could get more challenging, with Asia Group II price discount to US prices narrowing in Sept 2024 for first time since May 2024.

·        South Korea’s base oils exports show signs of slipping in H1 Sept 2024 vs month-earlier levels.

·        Its exports are likely to fall over coming weeks because of scheduled plant maintenance work.

·        Taiwan’s base oils exports slow sharply in H1 Sept 2024 compared with previous two months, raise prospect of dip in shipments this month.

·        Any such slowdown would coincide with likely drop in shipments from South Korea.

·        Slowdown would follow jump in Taiwan’s Group II base oils exports to China to seven-month high in Aug 2024.

·        Rise in shipments coincides with drop in China’s Group II base oils output since June 2024.

·        Rise in shipments could reflect moves by China’s refiners to boost Group III output in place of Group II base oils, and to cover any Group II shortfall with imports.

·        Taiwan’s base oils exports to southeast Asia in Aug 2024 hold at second-highest level in at least nine years.

·        Signs of sustained rise in shipments to markets like Indonesia add to competition for market share in southeast Asia market.

·        Southeast Asia is already a key market for supplies from Singapore and South Korea as demand for overseas supplies wanes in China and faces prospect of similar trend in India.

·        Singapore’s base oils exports rise over past week to highest weekly volume in almost a month.

·        Rise in exports follows sustained dip in shipments that cut four-week shipments to lowest in more than two months.

·        Any extension of weekly rise in exports would suggest the reason for the dip in shipments is over.

·        Singapore’s base oils imports over past four weeks rise to highest level since May 2023.

·        Imports get boost over past week from delivery of another large shipment from US, and cargo from Netherlands.

·        Singapore continues to take delivery of shipments from those markets despite closed arbitrage from US and Europe.

·        Shipments likely consist mostly of Group II base oils, adding to regional supply.

·        Asia’s base oils surplus of supply over demand rises to six-month high in July 2024.

·        Asia’s relatively firm base oils prices in Q3 2024 suggest lower-than-usual surplus throughout most of H1 2024 curbed impact of higher surplus in July 2024.

·        Surge in Asia’s base oils exports to southeast Asia in July 2024 points either to firm demand or to transfer of surplus volumes to that region.

·        Base oils supply falls more sharply in Asia than in Americas, Europe and Middle East in H1 2024.

·        Lower supply contrasts with firm demand in Asia, especially compared with US and Europe.

·        Lower supply and firmer demand could leave Asia’s supply surplus tighter than in other regions at least at start of H2 2024.