Asia base oils supply outlook: Week of 20 Jan

·         Asia’s base oils prices extend fall vs feedstock/gasoil prices as crude prices hold firm.

·         Light-grade base oils values slide close to or to discounts to gasoil prices, suggesting refiners face difficulty adjusting prices higher in response to rising feedstock costs.

·         Weak margins and limited leverage to raise prices incentivize refiners to cut output.

·         Signs of refinery run-cuts suggest some refiners are already implementing such moves.

·         Lower output would cut further a supply-surplus that shows signs of being lower than usual for the time of year.

·         Any disruptions to feedstock supplies from Russia could prompt additional run-cuts in markets like India and China.

·         Refiners’ stock-building ahead of/during scheduled plant maintenance work in northeast and southeast Asia likely to trim surplus further.

·         Supply could still get support from an arbitrage that stays hard to work to move cargoes to more distant markets, leaving more shipments in Asia.

·         South Korea’s base oils exports fall back to unusually low levels in Dec 2024.

·         Slump in exports points to lower-than-usual stocks in South Korea at end-2024 and moves to replenish inventories ahead of plant maintenance in Q1 2025.

·         Slump in exports cushions impact of seasonal dip in regional demand at year-end.

·         Slump in exports leaves regional buyers with lower-than-usual stocks at start of 2025.

·         Lower export volumes could extend through Q1 2025, until completion of upcoming plant maintenance work.

·         Lower exports raise prospect of keeping availability of Group II heavy grades tighter than usual.

·         That trend shows signs of extending to other key suppliers.

·         Light-grade base oils account for more than 60% of Taiwan’s base oils exports in Dec 2024.

·         Share rises from around 50% of Taiwan’s total exports in Aug-Nov 2024.

·         Drop in Taiwan’s heavy-grade base oils exports in Dec 2024, and their lower share of Taiwan’s total exports, add to signs that light-grade base oils accounted for larger share of rise in Asia’s surplus supply at end-2024.

·         Any extension of dip in Taiwan’s heavy-grade exports into early 2025 raises prospect of prolonging that trend.

·         Taiwan’s base oils shipments could face challenge of needing to target other markets like Americas once new base oils production capacity starts up in India and southeast Asia in coming year.

·         Taiwan’s base oils exports faced similar challenge in recent years when China’s rising production capacity cut demand from that market.

·         Taiwan redirected more shipments to southeast Asia and India instead.

·         New production capacity could curb number of alternative outlets in Asia, complicating Taiwan’s ability to respond.

·         Taiwan’s base oils exports hold firm so far in Jan 2025.

·         Regular flow of shipments could point to moves to front-load cargoes ahead of lunar new year holidays at end-Jan 2025.

·         Shipments include cargo bound for Pakistan.

·         Cargo would be second large shipment to Pakistan since Oct 2024.

·         Most recent cargo from Taiwan to Pakistan before Oct 2024 was in 2019.

·         Singapore’s four-week base oils exports rebound to highest since end-July 2024 amid surge in shipments to China.

·         Any extended pick-up in shipments would help to cushion against prospect of lower-than-usual export volumes from South Korea in coming months. 

·         Singapore takes delivery of cargo from UK in H1 Jan 2025, adding to swathe of supplies from Europe in recent months.

·         Rise in imports from Europe could further cushion impact of tighter availability from other suppliers in Asia.