Demand started to show signs of strengthening while spot supply has tightened, propping up prices despite lower crude oil and feedstock values. Some refiners reduced base oil output in favor of fuels due to more favorable margins, but the tide appeared to have turned and base stock production has become more attractive, with the exception perhaps of fundamentals in India. Promising prospects for an economic recovery in China were also feeding expectations of increased base oil and lubricants consumption in that key market.
A couple of South Korean suppliers were heard to have secured business into China as demand for imports has strengthened due to limited domestic availability of certain grades, with particular interest seen in API Group II and Group III supplies. A few Chinese base oil plants were either still running at reduced rates or shut down for maintenance or inspections. The race to increase the number of electric vehicles that are on the road in China was also anticipated to play a role in the type of lubricants and automotive fluids required in coming years, perhaps limiting the use of conventional base oils. At the same, the government’s phasing out of incentives for automobile purchases has resulted in a sharp drop in auto sales since the beginning of the year. Nevertheless, robust manufacturing activity would call for increased volumes of base stocks used in industrial applications and heavy-duty vehicles, sources noted.