China’s Sept base oils imports rise

China’s base oils imports recovered to a three-month high in September amid signs of firmer demand and low domestic supply.

Base oils imports of 149,930t in September rose from 92,960t in August and by 3pc from year-earlier levels, government data showed.

Imports had fallen below the 100,000 t/month level in July and August for the first time in more than five years.

Even with the improvement in supplies, imports of 1.44mn t in the first nine months of the year were still down 14pc from 1.68mn t during the same period last year.

Imports slid through most of the second and third quarters of the year in response to a slump in Chinese lube demand.

Imports rose in September at a time of year when blenders typically sought to replenish low stocks after a summer lull and ahead of a seasonal pick-up in demand at the end of the third quarter.

The trend repeated itself this year, even amidst persistent uncertainty about further lockdowns in the country to thwart any outbreak of the Covid-19 virus.

But the pick-up in imports was relatively muted, especially in view of the size of the slump in shipments in July and August.

Demand for overseas supplies got a further boost from tighter availability of supplies from domestic producers.

Domestic base oils output and run rates fell even further in September to their lowest level in years.

Increasingly firm domestic diesel prices on an outright basis and relative to base oils boosted refiners’ incentive to produce more middle distillates.

Lower domestic availability of base oils increased the need to tap supplies from regional markets to cover requirements.

A closed arbitrage to China had curbed such flows since the second quarter of the year.

That dynamic began to change during the third quarter.

Domestic producers’ base oils prices began to strengthen relative to fob Asia cargo prices in August. The recovery continued through September and October.

The trend made more feasible the arbitrage to move shipments to China. It also increased Chinese term buyers’ willingness to take delivery of supplies from the region rather than divert them to other markets.

A continued pick-up in demand for Asia-Pacific supplies would similarly reduce regional refiners’ surplus volumes.

The slump in Chinese demand since the start of the second quarter had forced the refiners to redirect those supplies to other markets.

The moves had added to healthy availability in those other markets and kept pressure on Asia-Pacific base oils prices throughout most of the year.