China’s July base oils demand stays low

China’s notional base oils demand stayed unusually low in July as slower economic growth continued to cut lubricants consumption.

Notional demand, or output plus net imports, edged up to 440,000t in July, government and industry data showed. The volume was up from 433,070t the previous month.

Those levels contrasted with typical demand volumes of more than 700,000 t/month in each of the previous two years and more than 600,000 t/month in the three years to 2018.

Total demand of 3.81mn t in the first seven months of the year were down 28pc from 5.26mn t during the same period a year ago.

China's base oils demand slowed sharply from April, at a time of year when consumption typically peaks.

The slowdown reflected the impact of increasingly widespread lockdowns in China to thwart the spread of the Covid-19 virus.

The repercussions of the drop in demand have been far-reaching.

Base oils producers and blenders in China cut run rates and continue to manage inventories carefully. The moves reflect the need for flexibility in view of uncertainty about economic growth and any additional lockdowns.

Major global lubricant blenders cited the slowdown in Chinese lube demand as a key factor for lower-than-expected sales in the Asia-Pacific region in the second quarter of the year.

The slower demand has put pressure on Asia-Pacific base oils prices.

Domestic Chinese base oils prices remained unusually weak this year despite the drop in domestic and overseas supplies.

The trend has kept shut the arbitrage to China and left regional producers with persistent surplus supplies.

They have had to clear these volumes in more distant markets like Latin America at prices that made the aribtrage workable.