Asia base oils - week of Sep 4: Supply outlook

·        Asia’s base oils supply likely to remain balanced-to-tight amid run-cuts, plant maintenance work, lower supply-build during summer months and firmer demand.

·        Refiners face challenge of covering immediate demand and managing prospect of growing caution among buyers in Q4 2023 amid wariness about demand prospects.

·        China’s Shandong diesel premium to crude oil edges down, stays well above early-July lows.

·        Firm Asia diesel values vs crude and weak base oil values incentivize base oils producers to limit production to cover term commitments only.

·        Recent/upcoming plant maintenance, run-cuts or unexpected shutdowns include plants in China, South Korea, Japan, Taiwan, Thailand and India.  

·        Prospect of new base oils capacity in Asia unlikely to have any immediate impact as buyers wait for production/specifications to stabilize.

·        Swathe of China’s recently-added capacity remains off-line, reflecting pressure of squeezed margins.

·        China’s August Group II base oils output stays unusually low, curbing domestic supply just weeks ahead of seasonal pick-up in demand.·       

·        Low Group II output coincided with weak base oils margins that incentivized run-cuts and extended plant maintenance work.

·        Low Group II output suggests refiners wary of strength of seasonal pick-up in demand.

·        Trend leaves domestic blenders more reliant on overseas supplies to secure any additional requirements.

·        South Korea’s July base oils output improves from June following restart of Group III unit.

·        Base oils output still holds at second-lowest level in more than two years, likely to remain lower than usual over following months as weak margins incentivize run-cuts.

·        Thailand’s base oils refiners’ July output holds steady, contrasting with sliding domestic demand and slowdown in exports.

·        Trend raises prospect of supply-build that coincides with already weak base oils margins.

·        Trend incentivizes refiners to cut production.

·        Japan’s July base oils output holds in narrow range, well below year-earlier levels.

·        Plant maintenance work and imminent closure of base oils unit likely to cut output more sharply over coming months.

·        Singapore’s July base oils imports from Mideast Gulf fall to five-month low, reflecting dip in flows of Group III base oils to the island-state.

·        Imports from Mideast Gulf show signs of reviving in August but stay well below May-June levels.

·        Recent slowdown in shipments to Asia follows drop in regional Group III prices, making arbitrage less attractive.

·        Singapore’s base oils exports hold steady during Q3 2023 despite slowdown in shipments to key markets of China and India, especially in July.

·        Steady shipments reflect ongoing diversification of supplies away from those two markets and towards southeast Asia.

·        Singapore’s base oils exports show signs of rising in August to five-month high, even with still muted flows to China and India.

·        Australia’s growing lube demand over past year boosts its attraction for Asia-Pacific suppliers.

·        South Korea’s base oils exports to Australia rise in first seven months of 2023, contrasting with slowdown in shipments from Singapore.

 ·        Trend adds to growing number of regional markets where share of base oils supplies from Singapore and South Korea shows signs of changing.