Asia base oils demand outlook: Week of 20 Jan

·         Asia’s base oils demand could be firmer than usual for time of year as rising feedstock costs and prospect of tightening fundamentals boost incentive to replenish depleted stocks.

·         Refinery run rates in India and China could face pressure from any interruption in flow of feedstock supplies from Russia.

·         Any such drop in domestic run-rates and production could curb base oils output, prompting buyers to turn to overseas markets to cover more of their supplies.

·         Uncertainty about such a scenario could anyway prompt buyers to carry out moves to line up more overseas shipments to ensure sufficient supply to cover requirements. 

·         China’s Group II base oils premium to domestic diesel price holds close to lowest since end-2023 after slumping earlier this month.

·         Firmer diesel values boost incentive for domestic refiners to cut base oils output and to produce more of the motor fuel.

·         Dynamic again raises prospect of drop in domestic base oils supply and subsequent rise in demand for overseas shipments.

·         Any such scenario would be more apparent after lunar new year holidays.

·         China’s base oils demand likely to ebb in interim at month-end and in early-Feb 2025 during lunar new year holidays.

·         Base oils demand in southeast Asia could revive earlier than expected amid unusually steep slump in South Korea’s exports to the region at end-2024.

·         Fall in shipments partially counters seasonal slowdown in demand, leaving buyers with lower stocks and subsequent need to replenish inventories earlier.

·         Concern about tighter-than-expected supply earlier than expected could add to moves to cover requirements earlier.

·         Any such tighter-than-expected supply could complicate such moves. 

·         Singapore’s four-week base oils exports to southeast Asia edge higher but stay lower than usual, especially compared with Q2-Q3 2024.

·         Steady-to-lower volumes from Singapore to southeast Asia, and slump in exports from South Korea, could leave region’s inventories lower ahead of seasonal rise in demand later in Q1 2025.

·         Philippines remains outlier in Asia-Pacific region that is seeing rising consumption of Group II base oils.

·         Philippines’ base oils imports from Thailand more than double in Nov 2024, rise by more than 35% in Jan-Nov 2024 from year earlier.

·         Rising imports contrast with fall in supplies from South Korea and Singapore in Jan-Nov 2024.

·         Imports from Thailand duly account for growing share of Philippines’ base oils supply in 2024, while share falls from Singapore and South Korea.

·         Asia’s shrinking availability of Group I base oils, and need for premium-grade base oils for higher-quality lubricants, makes Philippines an attractive market to target for region’s premium-grade refiners.

·         India’s base oils demand for shipments from overseas markets could get support from prospect of tighter supplies in Q1 2025.

·         India’s base oils imports, excluding very light grades, fall in Dec 2024 to lowest level in close to two years.

·         Drop in imports increases Indian buyers’ reliance on sustained rise in domestic base oils output in Q1 2025, when lube demand typically peaks.

·         Any lack of such a rise in domestic output would squeeze supply further.

·         Pick-up in shipments from US to India since late last year points to moves to secure additional supplies from overseas markets.

·         India’s Group I/II heavy-grade base oils imports fall in Dec 2024 to lowest since mid-2023.

·         Simultaneous fall in Group I and Group II heavy-neutrals base oils imports likely to leave blenders with lower stocks.

·         Lower imports and stocks likely to boost demand from domestic and overseas sources with surplus heavy-grade supplies.

·         India’s imported Group II cargo price premium narrows further vs FOB NE Asia prices, holds steady vs US export prices.

·         Price dynamic suggests Indian buyers are in little rush to lock in additional arbitrage cargoes.

·         Price dynamic boosts attraction of US shipments rather than supplies from Asia for any such cargoes.

·         Extended time period between procurement, loading and delivery of shipments from US could curb attraction of lining up additional supplies that would likely only reach India in Q2 2025.

·         Extended time period could conversely boost demand from buyers that are seeking to lock in prices at current levels in anticipation of upward price trend in coming months.

·         Pakistan’s base oils imports account for growing share of country’s base oils supply in H2 2024.

·         Imports share rises in response to growing demand and insufficient domestic production.

·         Signs of healthy economic activity point to ongoing rise in demand.

·         South Korea was Pakistan’s largest overseas base oils supplier in 2023.

·         South Korea faced more competition in 2024 amid rise in volumes from Singapore and US.

·         Growing competition from overseas refiners to supply Pakistan market likely to extend into 2025.

·         Planned rise in base oils production capacity in southeast Asia and India set to increase importance and value of outlets like Pakistan.