India’s Dec base oils output surges

India’s base oils output rose in December to its highest in a decade in the face of strong demand and lower supplies from overseas markets.

The country’s base oils supply still lagged demand as India’s imports fell even more sharply than domestic production rose.

The trend raised the prospect of a pick-up in demand for supplies from overseas markets in the more immediate term.

The expected start-up of new production capacity in India this year would be able to cover more domestic requirements in the longer term.

Base oils output of 130,000t in December rose from an already-high 116,000t the previous month, government data showed.

The rise in output for the fourth time in five months lifted total production to 1.27mn t in 2022. The volume was up 8pc from 1.18mn t the previous year.

India’s strong demand for base oils supplies last year partly reflected the country’s rising lubricants consumption on the back of firm economic growth.

Unusually strong demand for base oils from domestic refiners reflected the competitive prices for the supplies.

The volatility of prices for overseas shipments added to the attraction of domestic supplies.

Their more prompt delivery cut the risk of a change in market price between purchase and delivery of the supplies.

Their pricing in Indian rupees also cut exposure to currency risk.

Buyers' focus on procuring more domestic supplies may be hard to sustain.

Domestic refiners could struggle to maintain production at such high levels.

The December volume was the highest since July 2012.

Output never exceeded more than 121,000 t/month since then and averaged little more than 100,000 t/month over the past two years.

The 89,000t rise in domestic base oils output in 2022 also lagged India’s more-than 800,000t fall in base oils imports last year.

Even excluding all of India’s imports of very-light grade base oils, output lagged the 165,000t fall in imports of other base oils grades in 2022.