Asia base oils - week of Jan 22: Supply outlook

·        Asia’s Group I base oils supply likely to remain tight amid more extensive-than-expected plant maintenance in southeast Asia in Q1 2024.

·        Maintenance set to be followed by plant maintenance work in China later in Q1 2024, adding to structural drop in regional supply.

·        Asia’s Group I prices hold firm versus gasoil, contrasting with recent weakness of Group II prices versus gasoil.

·        Trend highlight relative tightness of Group I supplies and more plentiful availability of Group II supplies.

·        Plant maintenance also affects several Group III plants in Asia in Q1 2024.

·        Asia’s Group III price premium to Group II prices rises to highest in more than four months, coincides with signs of tighter supply dynamics vs Group II base oils.

·        China’s firm Group II prices vs diesel and vs fob Asia prices raise prospect of pick-up in domestic supply.

·        Domestic market would need sustained seasonal rise in demand after lunar new year holidays to avoid supply-build.

·        Plant maintenance in Q4 2023 was key factor behind fall in Taiwan’s base oils exports in 2023.

·        Lack of any scheduled plant maintenance in 2024 raises prospect of rebound in Taiwan’s base oils exports this year.

·        Any such rise in exports raises risk of larger regional supply-build and subsequent pressure on prices.

·        Lack of announced scheduled Group II plant maintenance work so far this year in Asia puts onus on refiners to adjust production more sharply to avoid a large supply-build.  

·        Signs of some such moves coincide with weaker regional base oils values vs competing fuel/feedstock prices.

·        Taiwan’s December base oils exports to southeast Asia and India exceed shipments to China for fourth month.

·        Trend reflects structural shift in flows to other markets instead of China.

·        Trend likely to continue through most of 2024 amid expectations that China’s domestic supply will cover most of any recovery in demand.

·        South Korea’s 2023 base oils exports fall to eight-year low.

·        Lower exports follow plant maintenance and run-cuts.

·        Size and extended period of drop in exports points to more extended run-cuts or structural changes that cut capacity.

·        Drop in exports helps to counter slowdown in Chinese demand, leaving Asia’s supply-demand fundamentals more balanced in 2023.

·        Exports may need to remain at lower levels again this year to avoid rise in surplus supplies.

·        India’s December base oils imports stay high even with slowdown in arbitrage shipments from US.

·        Trend highlights plentiful availability and competition for India market even with slowdown in US supplies.

·        Trend highlights likely widespread repercussions of any slowdown in India’s requirements for overseas supplies.

·        Singapore’s base oils imports stay unusually low in recent weeks amid sustained pause/slowdown in shipments from Japan and China.

·        Slowdown in shipments raises prospect of Singapore facing more volatile supplies this year amid growing reliance on more distant sources like Europe.

·        An alternative could be for Singapore to boost domestic output to cover more domestic and regional requirements.

·        Asia accounts for growing share of base oils shipments from Qatar in November and in 2023, contrasting with steady or lower share for Europe and US.

·        Rising flow of shipments to Asia could reflect moves to avoid adding to oversupply in US and Europe, where demand was weak and Group III prices already faced sustained pressure.