Asia base oils supply outlook: Week of 8 July

·        Asia’s base oils prices extend sharp fall versus feedstock/competing fuel prices since early-June 2024.

·        Lower margins and seasonal slowdown in demand could incentivize regional refiners to adjust output at start of Q3 2024, curbing prospect or size of any supply-build.

·        Size of surplus shows signs of staying lower than usual in Q2 2024.

·        Base oils exports in recent weeks show mixed signals, with slowdown from Singapore, and rise in shipments from Taiwan.

·        Wider discount of FOB NE Asia Group II prices to US prices could boost arbitrage flows to the Americas market.

·        Concern about weather-related supply disruptions in US could add to such moves.

·        Any such flows would trim regional supply.

·        China’s Group II supply likely to stay tighter at start of Q3 2024 because of ongoing maintenance work.

·        Signs of slowdown in shipments from Singapore and Taiwan to China in June 2024 would add to country’s tighter supply.

·        Tighter supply could boost feasibility of more arbitrage shipments to China, especially for heavy grades.

·        That trend could become more marked in a few weeks’ time, when blenders start to prepare for seasonal pick-up in demand at end of Q3.

·        Singapore’s June base oils exports show signs of falling sharply from May 2024.

·        Drop in supply raises prospect of limiting regional supply surplus at end of Q2 2024.

·        Rise in Singapore’s imports from Saudi Arabia at end-June/early July 2024 could include additional supplies of brightstock.

·        South Korea’s base oils exports show signs of slipping in June 2024 from previous month.

·        Any slowdown could point to lower base oils output or a rise in the country’s stocks.

·        South Korea’s base oils output rebounds in May 2024, with similar rise in exports likely leaving supply relatively balanced at least to end-May 2024.

·        Balanced supplies give refiners option of adjusting output or prices, or a combination of both, in response to seasonal slowdown in demand at end-Q2/early Q3 2024.

·        Japan’s May base oils supply falls to three-month low on dip in output and imports.

·        Japan’s strong domestic demand cuts further the volume of supplies available for export.

·        Thailand’s base oils imports account for growing share of country’s supply in first five months of 2024 as rise in shipments balances out fall in domestic production.

·        Extension of trend could free up more Group I base oils supplies from domestic refiners for export market.

·        Extension of trend increases importance of Thailand as key outlet for premium-grade base oils.

·        Rising importance of Thailand as key outlet likely to increase competition between Singapore and South Korea for larger share of its market.

·        Singapore’s share of Thailand’s base oils imports rises to more than 36% in first five months of 2024, up from 33% in 2023, while South Korea’s share shrinks.

·        China’s paraffinic base oils output falls to seven-month low in June 2024 on slide in Group II production.

·        Ongoing plant maintenance likely to extend slowdown in Group II output through July 2024.

·        China’s Group I base oils output rises to four-month high in June 2024.

·        China’s domestic Group I heavy-neutrals prices weaken versus domestic and FOB NE Asia Group II prices through June 2024, suggesting higher output is starting to ease recent supply tightness.

·        Domestic prices would need to ease further relative to FOB NE Asia prices to boost the attraction of exports.

·        China’s Group III base oils output rises to multi-year high in June 2024.

·        China’s domestic Group III prices maintain steep premium to prices in other regions, suggesting supply is still insufficient to meet demand.