Asia base oils demand outlook: Week of April 8

·        Asia’s base oils demand faces seasonal slowdown over coming weeks.

·        Rising feedstock costs put pressure on refiners to raise prices.

·        Concern about higher prices can trigger a pick-up in demand as buyers move to lock in prices at current, lower levels.

·        Any rise in prices could also trigger a drop in demand at a time of year when buyers face less urgency to hold larger stocks and supply shows signs of rising.

·        Asia’s supply-demand fundamentals point to such a trend over the coming months.

·        Asia’s Group II heavy-grade prices stay high vs light-grade prices, extend rise vs Group I heavy-neutrals prices.

·        Trend points to still-firm supply-demand fundamentals for Group II heavy grades.

·        China’s base oils demand shows signs of staying sufficiently strong to absorb country’s domestic supply.

·        China’s narrowing Group II domestic price premium to FOB NE Asia prices suggests supply-demand fundamentals are at levels that have little need for additional arbitrage shipments from the region.

·        Singapore’s base oils exports to China slump during the two weeks to early April 2024.

·        Drop in shipments likely leaves Singapore’s base oils exports to China lower than usual in March 2024.

·        Lower-than-usual shipments contrasts with surge in Singapore's exports to China in March 2023.

·        Contrast between this and last year suggests China’s supply is sufficient to meet demand.

·        Contrast suggests Singapore is focusing on tapping firmer demand in other markets like southeast Asia and India.

·        Japan’s domestic base oils/lube demand rises strongly in Feb 2024 from year-earlier levels.

·        Rising domestic demand accounts for growing share of Japan’s shrinking total supply.

·        Rising domestic demand and shrinking supply trigger sustained slump in base oil exports.

·        South Korea accounts for growing share of Japan’s base oil exports, compounding the drop in shipments to other markets.

·        Trend set to support sustained demand for alternative supplies in southeast Asia especially – for Group I or Group II base oils.

·        Thailand’s February lube demand rises for seventh month, with consumption of base oils from domestic suppliers rising to four-month high.

·        Base oils consumption rises even as plant maintenance work cuts domestic base oils output.

·        Higher demand for domestic supplies could reflect impact of slowdown in base oils imports from Japan in first two months of 2024.

·        Any extension of such a trend could cut for longer the volume of Thailand’s base oils supplies available for export.

·        Combination of firmer domestic demand and lower output already cuts Thailand’s exports in first two months of 2024 by more than 50% year on year.

·        Rising US export prices could complicate flow of additional shipments from that market to India.

·        Any slowdown in arbitrage opportunities from US could boost India’s demand for supplies from other sources.

·        India’s steady or lower CFR Group II price premium to FOB NE Asia prices suggest supply remains sufficient to cover demand.

·        India’s CFR price premium to FOB NE Asia Group II N150 prices stays narrower than month-earlier levels.

·        Narrower premium coincides with signs of India’s base oils imports from Saudi Arabia holding relatively firm in March 2024 even as they slip from previous months.

·        India’s imports from Saudi Arabia get boost from arrival of swathe of shipments in H2 March 2024.

·        Prospect of firmer-than-expected shipments from Saudi Arabia would curb India’s urgency to lock in alternative supplies from other markets.

·        Another shipment from Saudi Arabia is expected to reach India in H1 April 2024.

·        India’s CFR price premium to FOB Asia Group I SN 150 and brightstock prices stays firm.

·        Firm premium coincides with signs of a slowdown in India’s Group I base oils imports in March 2024.

·        Firm premium to FOB Asia prices points to ongoing demand for supplies from the region.