Asia base oils supply outlook: Week of 3 June

·        Asia’s base oils supply could move from relative balance to surplus amid signs of pick-up in flows from several markets.

·        Persistently high base oils margins incentivize refiners to maintain or raise output, even at a time when demand shows signs of slowing.

·        Any further pick-up in shipments from less regular sources like Indonesia and Russia could cushion slowdown in Group I supplies from Japan.

·        More limited arbitrage opportunities for Group II light grades could trigger faster build-up of those supplies.

·        Typical build-up of surplus supplies in second quarter of the year shows signs of being smaller than usual so far this year amid drop in supplies from South Korea, Taiwan and Japan.

·        Base oils exports from South Korea, Taiwan, Japan, China and Singapore combined fall in April 2024 for third month from year-earlier levels.

·        Slump in exports in first four months of 2024 trim size of supply-surplus so far this year.

·        Continuation of smaller surplus would curb pressure on refiners to make sharp price adjustments to clear supply overhang.

·        Continuation of smaller surplus would likely require adjustment to current supply dynamics.

·        South Korea’s April base oils output falls from March 2024 at a slower pace than drop in country’s base oils exports in April from March 2024.

·        South Korea’s steeper fall in exports in April 2024 cushion impact of plant maintenance work, curb size of shortfall of supply vs demand.

·        Smaller mismatch between supply and demand raises prospect of more rapid recovery in South Korea’s base oils exports through rest of Q2 2024.

·        South Korea’s base oils output and exports fell in Q2 2023 because of plant maintenance work.

·        Lack of scheduled maintenance work through rest of Q2 2024 raises prospect of rise in output and exports vs year-earlier levels.

·        South Korea’s base oils exports likely recovered strongly in May 2024 from previous month.

·        Taiwan’s base oils exports likely stayed lower than usual in May 2024.

·        Taiwan’s May base oils exports would have been even lower but for shipment of large cargo that was delayed from April 2024.

·        Taiwan’s base oils exports face growing incentive to target other markets instead of China following imposition of tariffs on shipments to China.

·        Alternative option would be to cut FOB NE Asia cargo prices for shipments to China to stay competitive.

·        Rise in China’s domestic base oils production capacity in recent years likely to limit repercussions of any further slowdown in shipments from Taiwan.

·        Singapore’s May base oils exports likely rose to highest monthly volume this year.

·        Any extension of rise in shipments from key sources like South Korea and Singapore could trigger fast pick-up in surplus supplies in Asia over the coming weeks.  

·        Singapore’s base oils imports last week include unusually large shipment from the US.

·        Signs of increasingly regular shipments from US add to supply in Asia market.

·        Japan’s April base oils output falls for thirteenth month year-on-year.

·        Lower output cuts supply available for export, with overseas shipments falling for eighth month and at faster pace than drop in output.

·        Trend incentivizes regional blenders that are reliant on overseas supplies of Group I base oils to switch to premium-grade base oils instead.

·        India’s base oils supply could be more volatile over the coming months, with planned plant shutdown from mid-June 2024 set to cut domestic output.

·        Lower output could coincide with lower base oils imports as less workable arbitrage cuts attraction for overseas refiners to move surplus supplies to India.

·        Planned resumption of base oils output from end-July 2024 could then coincide with pick-up in availability of surplus supplies in other markets.