The strained supply levels were not expected to improve soon because a heavy schedule of turnarounds, both in Asia and other regions, loomed on the horizon. A number of producers may opt for delaying the shutdowns to later in the year, when demand might not be as healthy, sources said.

For the moment, the turnarounds at two South Korean plants appeared to be on track to start in March. The producers were heard to be meeting term requirements, but were not offering any spot cargoes as they were building inventories to cover term commitments during the outage, according to sources.

In Japan, an API Group I producer was preparing to shut down its plant for an extended turnaround in February as well, but further details were not forthcoming.

One of the unusual phenomena in the base oils market has been the steady rise in Group I prices. While many players had expected Group I production to be gradually phased out – as Group I plants are less efficient, less environmentally friendly and more costly to run than newer Group II plants – demand for these grades has not abated, and producers were therefore unwilling to shut down existing production facilities.

The heavy-viscosity grades and bright stock were particularly difficult to locate, and there was no apparent relief in sight, as a similar situation plagued other regions, such as the United States and Europe.

Group I cargoes from Southeast Asia commanded most attention, as this was one of the sources that has been supplying material over the last few months, with a number of cargoes moving to destinations such as Singapore.

The extended turnaround at a Singapore Group I plant limited the Group I volumes available in the area. Japan is also a regular source of Group I exports, but recent turnarounds there affected the number of spot shipments concluded in recent months.

While slightly more Group I product appeared to be moving from Iran to India than in previous months, they were not significant enough to make a difference in the current imbalance. India and China were still in need to import large quantities of Group I cargoes for manufacturing operations and heavy-duty transportation and agricultural applications.

Restocking activity in China ahead of the Lunar New Year holidays starting on Feb. 11 has not been very strong this year, despite a steady increase in manufacturing activity in that country since the second quarter of 2020. Many lubricant manufacturers lower inventories ahead of Dec. 31 and then replenish stocks ahead of the Lunar New Year if prices seem to be on an upward trend, to avoid having to pay heftier values after the interstice. However, a lack of import cargoes limited restocking efforts, and consumers were anticipated to rely more heavily on domestic supply, even though the country continued to suffer from a structural shortage of the heavy grades.

Additionally, manufacturing operations were not expected to be reduced or shut down during the two-week holiday like in a typical year, when employees return to their home towns. That’s because the Chinese government was restricting domestic travel due to the recent surge of COVID-19 infections in some provinces.

Several Asian Group II plants were heard to have increased operating rates, leading to improved availability of Group II spot supplies, although these were still fairly limited. A couple of U.S. producers were heard to have offered small volumes for export, possibly to India, while a cargo shipped late last year was expected to reach Indian shores in the next few days.

Some Group II light-viscosity grades availability was reported from a South Korean producer, but there was a certain degree of caution on the part of bidders because prices have already moved up to a point that made buyers uneasy.

The Group III segment was also heard to be tight due to buying interest for base oils for automotive applications, an industry segment that appeared to be recovering in Asia. The implementation of more stringent emissions controls in some countries of the regions was also boosting demand for Group III grades. Supplies from a Middle East producer were said to be reduced due to an upcoming turnaround, but this could not be confirmed.

Spot prices in Asia were stable to firm this week, with buyers showing some resistance to steep increases as uncertainties related to the pandemic clouded prospects of improved lubricant consumption. The ranges portrayed below were revised to reflect current discussions and published prices widely regarded as benchmarks for the region.

Ex-tank Singapore prices were adjusted up to reflect bids and offers and recent transactions. The Group I solvent neutral 150 grade was up by $20 per metric ton at $770/t-$810/t. The SN500 was heard up by $50/t to $1,000/t-$1,040/t and bright stock also moved up by $50/t to $1,080/t-$1,120/t, all ex-tank Singapore this week.

The Group II 150 neutral was assessed up by $30/t at $840/t-$880/t, and the 500N was adjusted up by $40/t to $980/t-$1,010/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was assessed up by $20/t at $690/t-$720/t, and the SN500 jumped by $60/t to $940/t-$980/t. Bright stock surged by $50/t to $1,030/t-1,070/t, FOB Asia.

Group II 150N was up by $20/t at $710/t-$750/t FOB Asia, while the 500N and 600N cuts moved up by $40/t to $880/t-$920/t, FOB Asia.

In the Group III segment, the 4 centiStoke was assessed up by $20/t at $920-$960/t and the 6 cSt was also up by $20/t at $940/t-$980/t. The 8 cSt grade edged up by $20/t as well to $870-910/t, FOB Asia for fully approved product.

Upstream, crude oil futures moved higher on Wednesday on reports of a hefty drawdown in U.S. crude inventories and healthy demand from Asia, but persistent concerns about the effects of the raging coronavirus pandemic exerted downward pressure on Thursday. The number of global coronavirus cases exceeded 100 million this week, with infections still on the rise in Europe and the Americas, and several Asian nations trying to contain fresh outbreaks.

On Jan. 28, Brent March futures were trading at $55.72 per barrel, from $55.68/bbl on Jan. 21 on the London-based ICE Futures Europe exchange.

Dubai front month crude oil (Platts) financial futures settled at $54.94/bbl on the CME on Jan. 27, from $55.48/bbl on Jan. 20 (CME note: Settlement prices on instruments without open interest or volume are provided for web users only and are not based on market activity.)

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com. 

Lubes’n’Greases shall not be liable for commercial decisions based on the contents of this report.

Historic and current base oil pricing data are available for purchase in Excel format.