Asia base oils demand outlook: Week of March 4

·        Asia’s base oils demand likely to get support from seasonal pick-up in consumption over coming weeks and from still-limited availability of Group I base oils.

·        China’s base oils demand shows signs of focusing more on heavy grades.

·        China’s Group II light-grade premium to Shandong diesel prices edges down, contrasts with surging premium throughout Q1 2023.

·        Trend points to more cautious domestic demand for light grades.

·        China’s domestic Group II light/heavy-grade premium to fob Asia prices steadies, down from recent highs in Jan 2024 and well down from highs in Q1 2023.

·        China’s domestic Group III 4cst premium to fob Asia prices holds at lowest since June 2023.

·        Lower premiums cut attraction of moving more arbitrage shipments to China.

·        China’s domestic Group I bright stock premium to fob Asia prices rises to highest since Q1 2022 – making arbitrage even more attractive.

·        Asia’s Group I heavy-grade base oils premium to Group II prices sustains incentive for blenders to consume more Group II supplies instead of Group I.

·        Any such moves could extend tight availability of Group I heavy grades to Group II heavy grades.

·        Asia’s lube demand faces strong seasonal rise in consumption in month of March.

·        Demand in April set to fall after buyers bring forward their consumption, trimming Q2 2024 lube demand vs Q1 2024.

·        Regional base oils producers face challenge of boosting supply to meet seasonal rise in demand, before adjusting supply to avoid subsequent supply-build.

·        Singapore’s base oils exports to China hold firm during Feb 2024, so far avoiding repeat of surge in shipments in Q1 2023.

·        Shipments point to more cautious stock-building in China even as market enters peak-demand period.

·        More cautious stock-building would require more frequent stock-replenishment if demand exceeds expectations.

·        Ongoing pause in Singapore imports from China adds to signs of firmer domestic demand.

·        Singapore’s base oils exports to southeast Asia show signs of slipping in Feb 2024 mostly because of slowdown in shipments to Indonesia.

·        Japan’s domestic base oils consumption in Jan 2024 accounts for more than 80pc of country’s total demand, or domestic consumption and exports combined.

·        Before Oct 2023, the last time that domestic consumption accounted for at least 80pc of total demand was in 2012.

·        Trend highlights Japan’s more limited availability of supplies for export.

·        India’s January base oils supply exceeds demand for a fourth month.

·        Trend leaves domestic buyers well positioned to tap any rise in regional base oils prices over the coming months.

·        Buyers’ healthy stocks, and persistent signs of additional availability of supplies from US, could create dilemma for buyers.

·        Lack of urgency to add to stocks could incentivize buyers to target lower prices.

·        Lower prices could complicate any strategy of building stocks to benefit from expected rise in prices.

·        India’s January base oils supply, excluding very-light grade base oils imports, remains lower than demand.

·        Size of supply deficit shrinks to smallest in seventeen months.

·        Even excluding very-light grade imports, trend suggests India’s blenders’ supplies remain higher than usual.

·        CFR India N70 premium to regional gasoil prices extends recovery even amid signs of healthy availability in early 2024.

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

·        Rising premium coincides with still-firm domestic retail diesel premium to imported N70 prices in Feb 2024.

·        Firmer diesel premium to N70 often coincides with stronger demand for light-grade base oils.

·        CFR India Group I bright stock premium to fob Europe prices widens further to highest in more than four years.

·        Wide premium boosts incentive to move heavy grades from Europe/Russia to India.

·        Pakistan’s sustained recovery in lube demand during 2H 2023 contrasts with slump in domestic production.

·        Diverging trends boost requirements for overseas base oils supplies.

·        Trend boosts Pakistan’s base oils imports as share of country’s total share to more than 66pc of the total in 2023, up from a 64pc share in 2022.

·        Prospect of extension of the trend in 2024 leaves suppliers from South Korea well positioned to benefit the most.

·        Pakistan’s imports from South Korea accounted for more than 60pc of country’s total imports in 2023, up from a 48pc share in 2022.