Japan’s Sept base oils/lube output rises

Japan’s base oils and lube output rose in September ahead of the permanent closure of a Group I base oils plant at the end of that month.

Base oils and lube output of 227,920 kilolitres (201,900t) in September rose from a revised 199,900kl the previous month and by 46pc from year-earlier levels.

The rise in production for seven straight months boosted total output to 1.91mn kl in the first nine months of the year.

The volume was up 22pc from 1.56mn kl during the same period last year and the highest for that period in nine years.

Base oils production rose even amid unusually weak regional base oils prices and strong diesel values relative to crude.

Refiners in some markets linked their domestic base oils prices at a differential to crude oil prices. Such moves locked in firmer margins and curbed the incentive to cut production.

At the same time, Japan’s structural shift towards rising consumption of premium-grade base oils provided a growing incentive to cut production.

The trend left the country’s refiners with growing surplus availability of Group I base oils.

Japan’s base oils production consists mostly of Group I base oils.

An unusually light round of plant maintenance work this year added to the rise in surplus supplies.

The rising surplus triggered an increase in shipments to overseas markets. Prices for spot shipments especially were typically linked to a differential to regional base oils prices rather than to crude oil.

The additional shipments added to this year’s supply surplus in Asia-Pacific and increased the pressure on regional prices.

The lower prices and margins reduced the attraction and profitability of such shipments and increased producers’ incentive to cut supply.

The incentive turned to reality at end-September with the closure of one of Japan’s Group I base oils plants. Another Group I base oils unit is scheduled to be closed next year.