Asia base oils - week of Sep 18: Supply outlook

Asia base oils - week of Sep 18: Supply outlook

·        Rising feedstock costs and firm diesel values versus crude incentivize region’s refiners to focus on maximising middle distillates production, cutting base oils output.

·        Prospect of rise in China’s domestic base oils supply in September and muted seasonal rise in demand likely to curb refiners’ leverage to adjust prices in a way that keeps pace with rising feedstock costs.

·        Trend would keep refiners’ margins under pressure and incentivize more run-cuts or shutdowns for maintenance.

·        Recent start-up of new production capacity in China likely to have more impact within rather than outside the country, adding to domestic supply and pressure on margins.

·        Base oils supply outside China set to tighten because of ongoing and upcoming plant maintenance work from northeast Asia to India.

·        Other refiners face little incentive to raise production unless margins improve.

·        Asia’s July base oils supply stays lower than usual, cushioning impact of seasonal slowdown in demand in Q3 2023.

Supply stays low
Supply stays low

·        Lower supply limits build-up of surplus volumes, contrasting with same period last year.

Surplus stays low
Surplus stays low

·        More balanced fundamentals curb need to clear supplies at prices that make arbitrage feasible.

·        Asia base oils prices weaken versus crude and diesel in July-August despite more balanced fundamentals.

·        Weaker prices incentivize refiners to maintain lower output or to cut production further.

·        Trend raises prospect of tighter-than-expected supply and fewer arbitrage shipments to more distant markets.

·        South Korea’s August base oils exports stay unusually low even as they recover from multi-year lows in June and July.

Exports stay low
Exports stay lowKorea Customs Service

·        Muted recovery, even after completion of plant maintenance work, points to run-cuts and pressure from increasingly weak base oil margins.

·        Extension of weak margins through August incentivizes South Korean refiners to extend run-cuts through September.

·        Taiwan’s August base oils exports to India rebound after pause in July amid increasingly regular flow of large volumes to the country.

More supplies move to India
More supplies move to IndiaCustoms Administration

·        Taiwan’s exports to India likely to fall in coming months as plant maintenance cuts output.

·        Fall in shipments from Taiwan to India would coincide with slowdown in arbitrage flows from US to India.

·        Slowdown in shipments would coincide with seasonal rise in India's base oils and lube demand during festivals season.

·        Taiwan’s base oils imports from Japan slump to three-year low in July and August.

Imports from Japan slump
Imports from Japan slumpCustoms Administration

·        Drop in imports could be precursor of future slowdown in shipments from Japan following imminent closure of another Group I plant in the country.

·        Trend would leave Taiwan even more reliant on southeast Asia to cover its Group I base oils requirements.

·        Singapore’s weekly base oils exports to Indonesia continue to outpace its shipments to China and India.

Indonesia attracts more supplies
Indonesia attracts more suppliesEnterprise Singapore

·        Trend highlights ongoing structural shift in supplies towards southeast Asia amid firmer demand in the region compared with China.

Asia base oils - week of Sep 18: Supply outlook
Global base oils - week of Sep 18: Price outlook - arbitrage

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