Asia base oils - week of Dec 18: Supply outlook

·        Asia’s base oils supply likely to be mixed, with rising volumes of Group II base oils and increasingly tight availability of Group I base oils.

·        Asia’s Group III base oils supply show signs of dipping even ahead of several regional plant shutdowns in Q1 2024.

·        Asia’s Group II supply set to get boost following scheduled restart of Taiwan’s Group II unit in Dec 2023 after shutdown for maintenance work.

·        Asia’s Group II supply likely to get further support from open arbitrage from US and less feasible arbitrage to move supplies to the Americas region.

·        Asia and domestic China Group II prices continue to weaken vs Group I prices, reflecting region-wide tightening of Group I supplies vs Group II.

·        China’s domestic Group II light-grade premium to diesel stays lower than year-earlier, at levels that curb strong incentive to raise output.

·        Asia’s Group I supply likely to tighten further ahead of/during planned shutdown of Group I plant in Thailand in Jan 2024.

·        Plant shutdown would curb Thailand’s ability to provide additional supplies following closure of Group I plant in Japan in Q4 2023.

·        Plant shutdown would complicate regional buyers’ ability to replenish stocks ahead of seasonal rise in demand later in Q1 2024.

·        Taiwan’s November base oils exports stay unusually low because of ongoing plant maintenance work that month.

·        Drop in shipments coincides with fall in South Korea’s exports in Nov 2023 to four-month low.

·        Fall in South Korea’s base oils exports coincides with signs of lower-than-usual exports from Singapore in Nov 2023, and prospect of slowdown in shipments from Japan.

·        Slowdown in shipments curbs prospect of a major supply-build in Asia in Q4 2023, ahead of seasonal pick-up in demand in Q1 2024.

·        Drop in supplies and firm regional prices support prospect of ongoing flow of arbitrage shipments from US to markets like India.

·        Singapore’s weekly base oils imports almost grind to a halt amid sustained pause in flows from Japan, dearth of additional arbitrage cargoes from Europe.

·        Slowdown cuts Singapore’s imports over past four weeks to lowest level at least since early 2022.

·        Slowdown highlights repercussion of closure of base oils plant in Japan in Oct 2023, leaving Group I supply much tighter in Asia-Pacific region.

·        Ongoing slowdown in Singapore’s imports from China over last four weeks points to more limited surplus availability in that market.

·        India’s Group II prices strengthen vs US prices, weaken vs fob Asia and domestic China prices.

·        Trend boosts feasibility of more arbitrage shipments from US to India.

·        India’s November base oils imports rise to twenty-month high.

·        Rise in shipments highlights impact of rebound in exports from South Korea from start of Q4 2023, and of resumption of arbitrage flows from US.

·        Both those factors are likely to continue at least into start of 2024.

·        Prospect of rise in India’s base oils imports would leave buyers with more plentiful supply options and healthy stocks.

·        Trend shows signs of far outpacing rise in India’s domestic lube consumption.

·        Trend likely to put downward pressure on prices as Indian buyers leverage the growing competition among overseas suppliers.

·        India’s imports of arbitrage shipments from the US mostly consist of Group II mid-viscosity grades in Nov 2023.

·        Additional arbitrage shipments from US over coming months could include more very-light grade base oils as US faces prospect of lining up new outlets for supplies that had previously moved to Mexico.

·        Any such trend could put additional pressure on India’s imported prices for very-light grade base oils.