In today’s briefing:
- HONG KONG ALPHA PORTFOLIO (May 2025)
- EA: May Be Disinflation’s Return
- Asia base oils supply outlook: Week of 2 June
- Global base oils arb outlook: Week of 2 June
- Global base oils margins outlook: Week of 2 June
- Americas/EMEA base oils demand outlook: Week of 2 June
- US – Buy On Dip
- Americas/EMEA base oils supply outlook: Week of 2 June
HONG KONG ALPHA PORTFOLIO (May 2025)
- The Hong Kong Alpha portfolio underperformed its benchmark in May by 3%, however it has outperformed Hong Kong indexes by 3 to 19% since its launch 8 months ago.
- We continue to increase portfolio exposure to the consumption sector. We have added Alibaba Pictures (1060 HK), ZhongAn Online P&C Insurance C (6060 HK) & Sun Art Retail (6808 HK).
- At the end of May we sold positions in Kingsoft Corp (3888 HK) and Topsports International Holdings (6110 HK). We reduced Lingbao Gold Co Ltd H (3330 HK) .
EA: May Be Disinflation’s Return
- Negative payback in services inflation dragged the headline EA rate down to 1.92% in the May flash. Although only 7bps low on the day, releases last week had cut 0.1pp.
- Inflation now looks set to spend a few months below the target rather than at or even above it, as had seemed likely until recently. This is not because of re-rooted imports.
- Euro appreciation and low energy prices have expanded the ECB’s room to cut rates, but we still see June as the final one amid tight labour markets and peers backing away.
Asia base oils supply outlook: Week of 2 June
- Asia’s heavy-grade base oils price-premium to Singapore gasoil stays unusually high.
- Firm base oils premium suggests supply remains tight and demand firm, incentivizing refiners to raise output.
- Gap between Group II light and heavy-grade base oils prices widens more even after restart of growing number of base oils units following scheduled maintenance work.
Global base oils arb outlook: Week of 2 June
- US domestic Group I SN 500 price rises to premium to Group II N600 price in May 2025 for first time in more than four years.
- In Middle East, CFR UAE Group I SN 500 price discount to Group II N500 shrinks to narrowest in more than seven months.
- In Asia, FOB Asia Group I SN 500 price strengthens vs Group II N500 in May 2025 to firmest level in six months.
Global base oils margins outlook: Week of 2 June
- Global base oils prices mostly hold firm vs feedstock/competing fuel prices, especially in Europe and Asia.
- Firm price differentials point to strong supply-demand fundamentals, incentivize refiners to supply more volumes for those markets.
- Demand would need to hold firm to absorb any such pick-up in supplies.
Americas/EMEA base oils demand outlook: Week of 2 June
- US base oils demand could get support from stock-building ahead of Atlantic hurricane season.
- Slow end-user consumption, expectations of improving availability of supply and of steady-to-lower prices could curb extent of any such stock-building.
- US refiners’ regular exports of surplus shipments to overseas markets could limit volumes available to cover for any unexpected supply disruptions over coming months.
US – Buy On Dip
- We maintain a buy. The sectoral weightings favour industrials, tech hardware, banks, traditional energy, defence and going into the second half of the year consumer discretionary and AI software companies.
- The US is neither headed for a full-blown recession nor another cost-of living crisis.
- Neither updated business cycle indicators nor broad money growth trends signal a downturn and a resurgence in inflation.
Americas/EMEA base oils supply outlook: Week of 2 June
- US Group II base oils prices hold in narrow range vs VGO since mid-April 2025.
- Steady price differentials contrast with surge in margins in Q2 2024.
- Steadier margins so far in Q2 2025 coincide with time of year when supply-demand fundamentals are likely to be tighter than usual.
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