China’s Oct base oils output stays low

China’s base oils output edged up in October from the previous month but remained close to its lowest level in years.

Output remained low even as domestic base oils prices rebounded in October and demand got a seasonal boost.

Output of Group I, Group II and Group III base oils came to less than 320,000t in October, OilChem China data showed.

The volume was up from less than 295,000t in September. But it was still down 37pc from almost 510,000t in October 2021.

The sustained drop in China’s base oils production cut total output to 3.62mn t in the first 10 months of the year. The volume was down 33pc from 5.42mn t the same time in 2021 and the lowest in years.

The slump in output had coincided with a sharp drop in base oils imports in the first eight months of the year. The synchronised fall in supply reflected the sharp drop in China’s lube demand.

The pattern deviated in September, when domestic base oils production extended its fall.

Base oils imports rose in September to a three-month high.

The trend showed signs of repeating itself in October as output stayed low even as domestic demand improved.

The disconnect between low output and firmer demand triggered a sharp rise in China’s domestic Group II base oils prices. The firmer prices made more feasible the arbitrage to move more overseas shipments to China.

China’s base oils output stayed low despite the higher prices that boosted sharply their premium to diesel.

Low output partly reflected the impact of run cuts and plant maintenance work.

Domestic diesel prices were also unusually high relative to crude. The trend incentivized refiners to focus on producing more of the motor fuel.

Uncertainty about the sustainability of the pick-up in base oils demand added to the incentive for refiners to focus on other products.

China’s lube blenders have sought to manage their stocks carefully because of concern about the imposition of lockdowns to snuff out outbreaks of the Covid-19 virus.

The lockdowns have slashed economic activity and demand for lubricants.

Even with a muted recovery in demand, a continuation of domestic base oils production at low levels raised the prospect of firmer buying interest in shipments from regional producers.