China’s Oct base oils demand stays low

China’s base oils demand stayed unusually low in October, raising the prospect of insufficient supply ahead of a seasonal pick-up in consumption over the coming months.

The country’s weak demand this year prompted domestic refiners to operate at unusually low run rates and overseas producers to move more shipments to other markets instead.

China’s base oils supply slumped in response.

Rising domestic base oils prices in recent months and a sharp fall in China’s base oils exports in October suggested the drop in supply may have begun to outpace the slowdown in demand.

The prospect of more lockdowns in China in response to rising Covid-19 cases is likely to curb the pace of a seasonal pick-up in demand ahead of and after the lunar new year holidays early next year.

Even so, a rise in demand from current levels already showed signs of exceeding supply.

The trend raised the prospect of prices adjusting to levels that incentivized domestic refiners to increase production and regional producers to move more shipments to China.

China’s notional demand in October, or output plus net imports, edged back below 420,000t, from close to 425,000t the previous month, government and industry data showed.

The volume was the second lowest in years. The lowest had been in August, when a seasonal slowdown in consumption compounded the weak demand.

The low volume contrasted with average consumption of more than 700,000 t/month in 2021.

Chinese and regional refiners adjusted production and trade flows in response to this year’s slowdown in demand. The longer the slowdown continued, the more embedded the adjustments became.

The scenario raised the prospect of a delayed response from domestic and regional producers to a pick-up in demand.

Such an outcome showed signs of materializing.

Rising domestic prices in recent months failed to trigger a significant response from domestic refiners.

China’s base oils imports fell back in October from the previous month even in the face of firmer prices.

China’s imports from South Korea showed signs of staying low so far in November.