Asia base oils demand outlook: Week of 14 Oct

·        Asia’s base oils demand could get support from signs of more limited surplus supply and higher feedstock costs.

·        More limited surplus coincides with slump in regional base oils margins.

·        Refiners’ leverage to adjust prices in response to recent slide in margins likely to reflect relative strength of demand.

·        Any lack of significant price adjustments, when supply surplus is tighter, would point to weaker demand.

·        Any pick-up in price adjustments would suggest limited supply surplus outweighs any demand weakness.

·        Asia’s lube demand faced seasonal pick-up in Sept 2024 after consumption fell to six-month low in Aug 2024.

·        Firmer demand coincides with regional plant maintenance and plant closure in Sept-Oct 2024.

·        Plant maintenance/closure likely to keep availability tighter, leaving supply struggling to keep pace with demand in early Q4 2024.

·        Blenders’ higher stocks, and prospect of seasonal slowdown in demand in coming weeks, could curb impact of tighter supply.

·        Even so, tighter supply-demand fundamentals likely to boost buying interest in supplies from other sources.

·        US less likely to be one such source, with arbitrage from that market to Asia improving but still hard to work.

·        Taiwan’s base oils exports fall to seven-month low in Sept 2024 on dip in shipments to China and southeast Asia.

·        Fall in shipments to southeast Asia could reflect blenders’ still-sufficient inventories following rise in Asia exports to the region in July-Aug 2024.

·        Fall in shipments to China could reflect country’s increased self-sufficiency after domestic Group II output rebounds in Sept 2024.

·        China’s base oils exports to Singapore show signs of rising in recent weeks.

·        Rise in shipments adds to signs of sufficient domestic supply.

·        China’s domestic Group II base oils prices weaken vs Shandong diesel price and FOB NE Asia cargo price.

·        China’s weaker base oils values contrast with sustained price strength since late-Q2 2024.

·        Any extension of recent price weakness would add to signs of sufficient domestic supply and more muted requirements for overseas volumes.

·        India’s lube demand rises in Sept 2024 for fifth time in six months.

·        India’s lube demand typically rises in fourth quarter after seasonal slowdown in third quarter.

·        Firm lube demand over coming months would keep pressure on base oils supply to keep pace.

·        Prospect of dip in supplies from South Korea at start of Q4 2024 could add to challenge for supply to keep pace with demand.

·        Any such slowdown in supplies would add to pressure for strong rise in domestic base oils output or for buyers to line up more shipments from alternative sources.

·        India’s base oils imports show signs of rising strongly in Sept 2024, helping to replenish stocks.

·        India takes delivery of shipment from US in early-Oct 2024, with another cargo expected to arrive in coming week.

·        Even so, US unlikely to be significant source of larger volumes at least for several more months.

·        Dynamic increases importance of supplies from other sources like Singapore, Taiwan and Saudi Arabia.

·        CFR India Group II light-grade base oil price premium to FOB NE Asia price holds at highest since Apr 2024.

·        CFR India Group II heavy-grade premium to FOB NE Asia price rebounds to highest since July 2024, from discount in Aug-Sept 2024.

·        Firm/rebounding premium points to ongoing/rising buying interest, facilitates arbitrage to move more shipments from Asia to India.

·        Taiwan’s base oils shipments to India rebound in Sept 2024 even as its total exports fall.

·        Another large shipment from Taiwan is likely bound for India in Oct 2024.

·        Singapore’s base oils exports to India by contrast fall in recent weeks, while shipments to southeast Asia rise.

·        Slowdown in shipments from Singapore to India adds to importance of supplies from other sources.

·        Pakistan’s base oils demand shows signs of sustained growth, with supply rising in Aug 2024 for fourth time in five months.

·        An extension of that trend could boost country’s already-rising requirements for supplies from overseas markets.

·        A rise in demand for overseas supplies would add to importance of Pakistan as key outlet for base oils supplies from Asia.

·        Competition for Pakistan market shows signs of intensifying as steady flow of shipments from US continues to move to the country.

·        Rising competition has large impact on South Korea, whose share of Pakistan’s imports slumps so far in 2024.