Asia base oils - week of Jan 15: Demand outlook

·        Asia’s base oils demand shows signs of steady-to-firm buying interest in China and India, more muted buying interest in southeast Asia.

·        Signs of firm Chinese demand could cushion impact of rising Group II supply from Taiwan, ease concern about possibility of regional supply-build.

·        Asia’s Group II prices extend slide vs Group I prices, adding to incentive for blenders to consume more Group II supplies.

·        Asia’s Group II export prices fall vs feedstock/competing fuel prices, incentivizing refiners to cut surplus supply.

·        China’s domestic Group II light-grade price premium to fob Asia prices extends rise to highest in more than five months.

·        Rising domestic price premium boosts feasibility of moving arbitrage shipments to China, even at a time of healthy availability of domestic supplies.

·        Prices at levels that boost feasibility of arbitrage point to sufficient demand to absorb the supplies or raise prospect of large supply-build.

·        China’s domestic Group I bright stock price premium to fob Asia prices holds firm in narrow range since late Oct 2023.

·        Premium holds at level that sustains feasibility of attracting more arbitrage shipments to China.

·        Singapore’s weekly base oils exports to China surge, while imports from China extend slide over last four weeks.

·        Trend could point to moves to ship more supplies to China before market activity slows during lunar new year holidays in Feb 2024.

·        Trend could also point to firmer demand and blenders’ moves to build stocks ahead of expected seasonal rise in demand after lunar new year holidays.

·        Sustained slowdown in Singapore base oils imports from China adds to signs of tighter surplus availability, despite rise in China’s domestic production.  

·        Asia’s November lube demand holds steady yoy as firmer consumption in India counters weaker demand in northeast Asia and southeast Asia.

·        India’s rising lube demand highlights importance of country as key outlet for regional base oils supplies relative to other markets.

·        Trend highlights large impact of any slowdown in India’s base oils demand for overseas supplies even if its domestic lube demand continues to rise.

·        Such a scenario is more likely to materialize when new base oils production capacity starts up in the coming months.

·        Vietnam’s November base oils imports hold firm, with Singapore and South Korea accounting for more than 90pc of country’s supplies.

·        Vietnam’s steadier base oils imports in Nov 2023 point to signs of slowdown in pace of recovery in southeast Asia’s demand.

·        South Korea remains Vietnam’s largest source of overseas base oils in Jan-Nov 2023, displacing Singapore.

·        Competition likely to intensify for southeast Asian markets like Vietnam as Asia’s refiners seek alternative outlets and cut reliance on markets like China.

·        Prospect of slowdown in India’s requirements for base oils imports this year would add to importance of southeast Asia as key outlet for regional supplies.

·        Singapore’s base oils exports to Indonesia over last four weeks combined fall to lowest since Q2 2023.

·        Slowdown follows unusually large shipments to Indonesia in second-half 2023.

·        Slowdown in shipments could reflect focus on prioritising Chinese market at start of the year.

·        Philippines' November lube/base oils imports fall for ninth month, adding to downward pressure on regional demand.

·        South Korea accounts for larger share of Philippines’ base oils/lube imports than Singapore in Jan-Nov 2023, mirroring similar trend to Vietnam.

·        India’s automobile sales forecast to extend rise in 2024 following 11pc growth in 2023.

·        India’s December lube demand rises for seventh time in eight months; demand rises 5pc in 2023.

·        Prospect of further rise in India’s rising lube demand likely to benefit overseas base oils refiners until new base oils production capacity starts up in the country.

·        The new units are set to cover more of India’s domestic requirements, curbing country’s requirements for supplies from overseas markets.

·        Rebound in India’s Group II base oils premium to fob Asia prices makes arbitrage more feasible, especially for heavy grades.

·        Rebound in premium coincides with signs of slowdown in shipments from Saudi Arabia to India in recent weeks.