Supply is contracting. Japan's Ministry of Economy, Trade and Industry data show total base oils supply, output plus imports, falling to 161,000 kilolitres (142,000 tonnes) in August from close to 182,000 kl in July. Output came in at 151,800 kl (134,000 tonnes), below July's 174,500 kl — a seasonal August step-down that is normal, yet still up 14% year on year. The real signal is in imports: 9,300 kl, down 30% year on year, a fifth consecutive annual decline, and just 5.8% of supply against a 2025 norm of around 9%. The sourcing mix is shifting too. Arrivals from South Korea fell to a six-month low as Korean refiners sent more cargo to higher-priced markets in Europe and the Americas, while flows from Qatar stayed below half of usual volumes — with combined Korean and Qatari volumes at their lowest in six months. The slump in premium-grade Middle East imports has further squeezed what the region can draw on.

Demand is moving the other way. Domestic base oils and lubricants demand rose 4% year on year in August to 166,400 kl (147,000 tonnes), lifting cumulative consumption over the first seven months of the year to 1.09 million kl, up 14% year on year. Total demand — domestic consumption plus exports — reached 185,500 kl, the highest in four months and second-highest in two years, with domestic demand taking a 90% share against 85% in June, the largest in a year. The split within demand matters: Japan's industrial oils consumption rose 10% year on year in June, a fourth increase in five months, while automobile lubricants demand fell 6%, a second straight monthly decline. On the stock ledger, supply still outpaced demand by more than 23,000 kl, versus a shortfall of over 3,500 kl in July — the summer build was substantially compressed.

The refiner's choice is the key to all of this. Japan's asphalt output rose to a five-month high in August, outpacing base oils for the first time in five months and extending the usual August production pattern. The economics behind it: Asian Group I and Group II prices came under pressure through the third quarter both outright and relative to diesel, while the diesel premium over crude widened, giving refiners every reason to prioritise diesel production over base oils. It reads even more clearly against the feedstock backdrop: with naphtha and diesel premiums over barrel widening — the naphtha-Brent crack reached $237.18/mt on 30 October — feedstocks such as vacuum gasoil get routed toward fuel and petrochemical streams, and base oil output gives way passively. This is a cross-category linkage, not a problem with base oil demand itself.

What this means for SNSUC. SN150 and SN500 sit directly in our addressable categories, and this data set yields three actionable judgements. First, Japan is shifting from regional swing supplier to domestic absorber: with domestic demand at 90% of the total and exports at a five-month low — five-month low to China, four-month low to Southeast Asia — the spot volume Japan can release is shrinking, and the wider Asian pool is thinning with it. Second, five straight months of import declines and halved Korean and Qatari arrivals mean Japan is competing for the same barrels we are; our quotes must carry shorter validity windows and lock grade and batch explicitly. Third, fourth-quarter plant maintenance will cut regional supply just as Indian and Japanese demand revives, tightening an already snug balance — we should prioritise securing volume over fixing price, and write load port, validity and third-party inspection terms into the contract at the same time. Risk note: this is a market observation based on public data and does not constitute investment advice.