Asia base oils demand outlook: Week of 2 Dec

·        Asia’s base oils demand likely to stay muted amid seasonal slowdown and signs of sufficient supply to cover requirements.

·        Base oils margins stay firm even as supply improves and demand eases.

·        Buyers’ expectations that base oils margins will adjust to reflect current fundamentals could add to preference to hold back. 

·        China’s demand shows signs of staying more muted.

·        China’s domestic Group II base oils prices hold steady versus FOB Asia prices, deterring any pick-up in arbitrage shipments.

·        Prices hold steady versus FOB Asia prices even amid signs of fall in China’s base oils output in Nov 2024.

·        Lack of any significant price response to lower supply points to equally muted demand.

·        China’s domestic Group I brightstock price premium to FOB Asia cargo price extends slide to lowest in more than four years.

·        Weakness of China brightstock prices contrasts with sustained strength of FOB Asia brightstock price in face of tight supply fundamentals.

·        China’s price weakness suggests those tight supply fundamentals have less impact on China's domestic market.

·        Singapore’s base oils shipments to China fall over last four weeks, raising prospect of total exports in Nov 2024 falling from previous month.

·        Lower export volume adds to signs of more muted Chinese demand.

·        Singapore’s base oils exports to southeast Asia over last four weeks hold steady and relatively lower than in Jan-Oct 2024.

·        Lower shipments follow rebound in Asia’s base oils exports to southeast Asia in Oct 2024 and seasonal slowdown in demand in Q4 2024.

·        Dynamic suggests buyers are comfortable with existing inventory levels, confident they can top up with additional volumes if required.

·        Japan’s base oils and lube demand falls in Oct 2024 for fourth time in five months from year-earlier levels.

·        Drop in demand raises prospect of extending a steep fall in northeast Asia’s lube consumption well into Q4 2024.

·        Drop in demand puts on onus on other markets in Asia to limit slowdown in region’s consumption.

·        India’s demand for additional base oils supplies could stay more muted even after country’s supply lags demand in Oct 2024 for eighth month.

·        Shortfall reflects impact of low base oils output and lower imports in Oct 2024.

·        Supply-tightness likely peaked around Oct 2024, with supply likely to improve over coming months on recovery in domestic output and pick-up in availability of overseas shipments.

·        Expectations of improving supply raise prospect of price pressure as overseas suppliers compete for buyers in India.

·        Expectations of improving supply and price pressure incentivize buyers to hold back until they are confident that prices have finished adjusting accordingly.

·        CFR India Group II price premium to FOB NE Asia prices stays lower than in Q1 2024, when swathe of arbitrage shipments moved to India.

·        Narrower premium points to limited urgency to make arbitrage workable, puts onus on prices in supplier-markets to adjust to make arb workable.

·        Expectations of improving supply incentivize buyers to procure sufficient volumes from markets that are logistically closer and with faster shipment time in order to cover immediate requirements.

·        Dynamic puts pressure on prices for supplies from more distant markets like US to be more competitive to cover for time exposure between procurement and delivery of shipments.

·        India’s demand for very-light grade base oils could hold firm, with gap between domestic retail diesel prices and imported light-grade prices holding at widest in more than two years.

·        Demand for very-light-grade base oils tends to rise when price-gap widens.