Asia base oils - week of Jan 8: Supply outlook

Asia base oils - week of Jan 8: Supply outlook

·        Asia’s base oils supply enters new year with more limited surplus amid lower-than-usual exports from key sources like Singapore, Taiwan and Japan.

·        Surplus stays manageable even with ongoing flow of arbitrage shipments from US to India.

·        Supply likely to get further boost from gradual revival in exports from Taiwan.

·        Regional Group I supply stays tighter than Group II/Group III supply, attracting additional shipments from Europe/Russia.

·        Asia’s Group II premium to Group I base oils stays narrow, ICIS data shows.

·        Narrow Group II premium highlights structurally tighter Group I supplies vs Group II base oils.

·        Removal of Asia Group II heavy-grade supply surplus could get more complicated as arbitrage to move cargoes to Latin America gets harder to work.

·        Arbitrage to move US cargoes to India/Mideast Gulf stays feasible, adding to complication of removing any surplus Asia supplies from the region.

·        Arbitrage to move Asia Group II cargoes to Europe gets more feasible, boosting attraction of targeting that region with more supplies.

·        China’s December base oils output rises to highest in almost two years.

Output extends rise
Output extends riseOilChem China

·        Rising output, and capacity for production to rise much higher, would likely cover most of any recovery in China’s base oils demand.

·        Trend highlights importance for Asia’s base oils refiners to target other markets instead of China.

·        South Korea’s November base oils output rises to six-month high.

Output rises
Output risesKPA

·        Rising output contrasts with fall in South Korea’s November base oils exports.

·        Contrasting trends raise prospect of supply-build and need to clear more supplies over following weeks, especially of Group III base oils.

·        Signs of rise in South Korea’s base oils exports in December point to pick-up in Group III shipments especially.

·        Shipments show signs of rising even as global Group III base oils prices face sustained downward pressure.

·        Japan’s November base oils supply falls further as output extends drop for eighth month.

Output extends fall
Output extends fallMETI

·        Drop in output likely to be long-lasting, set to cut surplus supply for export to other markets in Asia.

·        Structural fall in Asia’s Group I base oils supply increases incentive/need for blenders to minimize consumption of Group I base oils and use more premium-grade supplies instead.

·        Thailand’s November base oils output stays lower than usual for third month.

Output stays lower
Output stays lowerMinistry of Energy

·        Lower base oils output compounds tighter regional Group I base oils supply following closure of Group I plant in Japan in Oct 2023.

·        Lower Group I supply limits any supply-build at end-2023.

·        Scheduled plant maintenance work in Thailand in Jan 2024 set to trim output further, likely to coincide with round of regional stock-building ahead of seasonal pick-up in demand later in Q1 2024.

·        India’s November base oils output rises for twelfth time in thirteen months, boosts total supply to eight-month high.

Supply rises
Supply risesVarious government, port data

·        India’s base oils output rises to record-high levels in Jan-Nov 2023, even ahead of start-up of new production capacity.

·        India’s base oils output likely to extend rise in 2024 as new units start operations.

·        Rising output likely to have widespread repercussions for overseas suppliers.

·        Singapore’s base oils shipments slump in 2H Dec 2023, likely slashing December exports to lowest in at least a year.

Exports extend drop
Exports extend dropEnterprise Singapore

·        Any extension of slowdown in shipments would suggest the drop in exports more likely to be linked to factors like plant maintenance work or run-cuts rather than to seasonal factors.

·        Singapore’s Group I base oils supply likely gets boost following arrival of large shipment from Europe in past week, and a shipment from Russia in late-Dec 2023.

·        Shipments from those sources should help to balance out pause in supplies from Japan to Singapore since Nov 2023.

Asia base oils - week of Jan 8: Supply outlook
Asia base oils - week of Jan 8: Demand outlook
Asia base oils - week of Jan 8: Supply outlook
Global base oils - week of Jan 8: Price outlook - margins
Asia base oils - week of Jan 8: Supply outlook
Global base oils - week of Jan 8: Price outlook - arbitrage

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