China’s base oils output stayed lower than usual in July even as it rose from the previous month.Output stayed low even with an increasingly unworkable arbitrage to attract additional supplies from overseas markets.Low output and a less workable arbitrage pointed to increasingly slack demand.China’s total paraffinic base oils output of around 426,000 tonnes in July rose from less than 400,000 tonnes the previous month, OilChem China data showed.The June volume was the lowest in twenty-one months.The July volume was the second-lowest in a year.Base oils production levels rose in July mostly because of a recovery in output of Group II supplies to close to 350,000 tonnes, from around 320,000 tonnes the previous month..Group II base oils output got a boost from the restart of several plants in June and July following shutdowns for maintenance-work.Even so, the July volume was still the second-lowest in five months.Weak domestic base oils margins and a seasonal slowdown in consumption curbed the incentive for refiners to raise output any higher.Demand usually starts to improve in the month of August as blenders replenish stocks ahead of a seasonal pick-up in consumption at the end of the third quarter.Any extension of low base oils margins over the coming weeks would point to ongoing demand-weakness and curb the incentive for refiners to raise output.Unlike the Group II market, China’s Group III base oils output extended its fall in July to a fourteen-month low.The lower output coincided with some plant-maintenance work.It also coincided with unusually weak domestic Group III base oils prices that incentivized domestic refiners to switch to producing Group II base oils instead.The low prices also cut the attraction for overseas suppliers to move more Group III base oils shipments to China.The lack of any sharp price-response to the subsequent drop in supply pointed to increasingly weak demand for the premium-grade base oils..China’s June base oils demand falls.Base Oil News stories and analyses also available on the ICIS platform
