China’s Nov base oils output stays low

China’s base oils output stayed unusually low in November even as domestic prices surged in response to tighter supply.

Low production boosted domestic blenders’ reliance on base oils imports to cover their requirements.

Any pick-up in imports in November was likely relatively muted.

The trend reflected distributors and blenders’ preference to maintain low stocks amid uncertainty about China’s zero-Covid policy and its response to a widening outbreak of the virus in November.

The preference to hold off building stocks ahead of the lunar new year holidays in late January raised the prospect of a pick-up in such activity during a shorter period of time.

The possibility of a sharper rise in demand early next year raised the prospect of regional base oils prices reflecting that change in demand dynamics.

China’s output of Group I, Group II and Group III base oils edged up to more than 325,000t in November, from less than 320,000t the previous month, OilChem China data showed.

Output edged higher for a second month after bottoming out at a multi-year low of less than 300,000t in September.

Base oils production still fell by more than 30pc from year-earlier levels and cut total output to 3.95mn t in the first 11 months of the year.  

The volume was down 33pc from 5.90mn t during the same period last year.

Base oils output barely rose in November even as China’s domestic Group II light-grade prices rebounded to their highest in more than two years as low supply lagged demand.  

The higher output in November mostly reflected a rise in Group I base oils production.

Group II base oils output edged up slightly. Group III output fell.

Low production and high prices made the arbitrage to China more feasible for supplies from other producers in the Asia-Pacific region.

Shipments from Taiwan to China rose in November from the previous month. There were signs of a more muted pick-up in flows from Singapore to China and relatively steady supplies from South Korea.

These volumes were still much lower than usual.

The trend raised the prospect of a rise in domestic or overseas supplies to cover a seasonal pick-up in demand over the coming months.

The rise in demand could get a further boost amid recent signs of a relaxation of China’s zero-Covid policy.