Asia base oils demand outlook: Week of 10 Feb

·         Asia’s base oils demand likely to get support from seasonal pick-up in requirements and signs of tightening supply.

·         Firmer base oils prices add to signs of more balanced-to-tight supply-demand fundamentals.

·         Concern that prices will continue to trend upwards could add to demand as buyers seek to lock in supplies at current price levels.

·         Signs of limited arbitrage shipments from other regions to Asia could boost demand for any surplus supplies within the region.

·         Signs of still-limited availability of heavy-grade base oils could spur stronger demand for those grades, compounding their supply tightness.

·         Base oils demand in China typically rises after lunar new year holidays amid moves to build stocks ahead of spring oil-change season.

·         China’s demand for overseas supplies typically rises strongly in first quarter of the year.

·         China’s demand for overseas supplies of Group III base oils could be lower this time as higher domestic Group III production covers more of its requirements.

·         Demand for other grades for which China is structurally short could hold firmer, even if lower than previously.

·         CFR NE Asia Group I brightstock discount to CFR India cargo price tightens to narrowest in almost five months.

·         Narrower discount points to firmer supply-demand fundamentals in China.

·         Ongoing discount contrasts with premium to CFR India price the same time a year earlier, pointing to weaker fundamentals vs year-earlier levels.

·         China’s domestic Group II N500 premium to FOB Asia cargo price holds relatively firm and above year-earlier levels after rebounding in Nov-Dec 2024.

·         Firmer premium points to tighter fundamentals, facilitates arbitrage to import additional supplies.

·         Demand in other parts of Asia also likely to rise.

·         Thailand’s lube demand rises in Dec 2024 for first time in five months.

·         Rise in demand adds to pick-up in consumption in southeast Asia at year-end.

·         Firmer consumption contrasts with fall in Asia’s base oils exports to southeast Asia in Dec 2024.

·         Firmer demand and lower supply likely leaves blenders with lower stocks at start of this year.

·         Blenders’ lower stocks, and prospect of tighter supply later in Q1 2025, boosts incentive to replenish inventories early.

·         Any delayed moves to replenish low stocks could magnify impact of higher demand and tighter supply later in Q1 2025.

·         Singapore’s base oils exports to southeast Asia stay lower than usual in four weeks to early-Feb 2025.

·         Lower exports suggest that blenders may be holding off replenishing stocks or securing supplies from other sources instead.

·         India’s imported Group II base oils cargo prices edge up vs FOB Asia prices for first time this year.

·         CFR India cargo price premium to FOB Asia price remains weak, especially vs year-earlier levels and despite signs of tight supply at end-2024.

·         India’s base oils supply lags demand in Dec 2024 for ninth time in ten months.

·         India’s weaker base oils prices in recent weeks could suggest buyers secured sufficient additional volumes for delivery early this year.

·         Buyers’ inventories get boost following arrival of wave of arbitrage shipments from US in Jan 2025.

·         Weaker prices in recent weeks could point to buyers’ preference to avoid large stock-build, or point to concern about weaker demand.

·         Even so, weaker prices precede seasonal rise in consumption in India in month of March.

·         Weaker prices could put pressure on overseas suppliers to adjust prices lower if they face pressure to clear surplus volumes.

·         Signs of more limited surplus supply in Asia, Europe and US curb pressure on overseas suppliers to adjust prices lower.

·         Upcoming plant maintenance in India could curb availability of surplus supplies in its domestic market in coming weeks.

·         Any concern about tighter-than-expected fundamentals could trigger adjustment in CFR India prices that boost attraction of moving more supplies to India.

·         Pakistan’s imports of Group II heavy-grade base oils fall as share of total imports in Dec 2024 to lowest in eight months.

·         Falling Group II heavy-grade share contrasts with rise in Group I heavy neutrals share of total imports.

·         Diverging trends leave heavy grades accounting for similar share of total imports.

·         Dynamic could reflect impact of steep premium of Group II heavy grades versus Group I base oils, boosting incentive for buyers to procure more Group I supplies instead.

·         US accounts for close to 30% of Pakistan’s Group II heavy-grade imports in 2024, up from 1% in 2023.

·         Dynamic reflects growing competition from US shipments for larger share of Pakistan’s imports.

·         Dynamic could squeeze demand for supplies from Asia, at a time when growing regional base oils production capacity boosts importance of outlets like Pakistan.