Asia base oils demand outlook: Week of 30 Sept

·        Asia’s base oils demand could stay more cautious as high margins and falling prices in other markets sustain concern about downward price pressure.

·        Signs of steady-to-firm underlying lube consumption and limited surplus supply at end-Q3 likely to sustain regular procurement, even if blenders seek to maintain lower stocks.

·        Supply-demand dynamics for heavy-grade base oils especially show signs of staying strong.

·        Premium of FOB NE Asia Group II N500 over N150 extends rise to highest since Q4 2021.

·        Premium maintains sustained rise since start of 2024.

·        Relatively steady supply suggests demand is key driver behind rising premium.

·        China’s base oils imports rise in August 2024 from year-earlier levels for first time in seven months.

·        Rise in imports and firm domestic output extend rebound in China’s base oils supply.

·        Rising supply points either to rising stocks and subsequent slowdown in demand, or to demand that is firm enough to absorb the supplies.

·        China’s domestic base oils prices hold increasingly firm vs domestic diesel prices and vs FOB Asia prices throughout Q3 2024.

·        Firm base oils prices incentivize domestic and regional refiners to boost already-high supply for China's domestic market.

·        Rising supply and still-rising price differentials suggest that China’s demand may be stronger than expected.

·        Singapore’s four-week base oils exports to China hold steady, contrasting with rise in shipments to southeast Asia and especially India.

·        Singapore's base oils exports recover in recent weeks after fall in total exports and in shipments to key outlets in Aug 2024.

·        Slowdown in Singapore's exports in Aug 2024 includes to Indonesia, but shipments rise to other markets in southeast Asia.

·        Singapore's exports to Indonesia shows signs of improving in Sept 2024, while shipments to rest of southeast Asia see slowdown.

·        Trend points to steady demand throughout the region.

·        Vietnam’s base oils imports rise to fifteen-month high in Aug 2024.

·        Rise in shipments follows and likely partly reflects surge in Asia’s base oil exports to southeast Asia in July 2024.

·        Surge in shipments to the region could curb subsequent pace of demand as buyers first consume existing stocks.

·        South Korea’s share of Vietnam’s base oils imports continues to outpace Singapore’s share in Aug 2024 and in Jan-Aug 2024.

·        Singapore was previously the largest source of Vietnam’s imports in each of the previous four years.

·        Pick-up in Singapore’s shipments to India in recent weeks points to steady demand in that market, after India's base oils supply lags demand for sixth month in Aug 2024.

·        Wider shortfall leaves blenders with lower stocks ahead of seasonal rise in demand from end-Q3 2024.

·        Wider shortfall curbs blenders’ leverage to hold off locking in more supplies even if there is a preference to hold back in anticipation of improving supply and lower prices.

·        Dynamic could prompt buyers to procure smaller volumes more frequently in order to sustain sufficient stocks, as they wait for overseas supplies to rise.

·        India’s imported Group II N150 premium to FOB NE Asia price extends rise at end-Sept 2024 to widest in more than five months.

·        Widening premium makes arbitrage more feasible, points to ongoing buying interest even amid expectations of lower outright prices.

·        Any significant pick-up in supplies from the US is unlikely to see shipments reach India until year-end or early next year.

·        Any significant pick-up in supplies remains unlikely for now, with arbitrage from US still hard to work; US prices maintain steep premium to CFR India prices even after recent fall in outright US prices.

·        Possibility of more feasible arbitrage only later in the year would leave Indian buyers facing prospect of tighter supply in Q4 2024 because of maintenance work on a base oils unit in South Korea.

·        India’s domestic diesel premium to imported Group II N70 price rises in Sept 2024 to highest in more than two years.

·        Rising domestic diesel premium to CFR India N70 price often triggers rise in demand for very-light grade base oils.