Base oil trading was fairly brisk in Asia, with many cargoes changing hands within the region and supply deemed overall balanced against demand, although tightening conditions in some segments of the market have started to place upward pressure on a number of grades.
One of the big question marks remained whether Chinese demand would be coming back stronger than it has been. While requirements typically flourish ahead of the spring season, buying appetite has been timid, particularly as far as imports were concerned. This situation may be partly attributed to increased domestic production, which limited to need for imports, although a couple of plants were either currently running at reduced rates or were shut down for maintenance.
Still, plentiful domestic supplies allowed sellers to offer product at attractive levels while keeping out imports. Plant utilization rates in China during 2022 had fallen to 40 percent and remained curtailed, according to a speaker presenting at the 15th ICIS Base Oils and Lubricants conference in Singapore this week. Run rates for API Group II grades were expected to remain low due to overcapacity, another market expert noted. Many base oil plants came on stream in 2019, and this has led to excess supplies of some grades, while some new projects that are in the pipeline may be delayed or cancelled altogether.
Even though the light grades appeared to be easily obtained, a structural deficit of the heavy-viscosity grades in China continued to force buyers into the market, with bright stock in particular commanding attention. The Group II cuts also saw steady demand. The sole Taiwanese Group II producer regularly exports a large portion of its production to China, and large amounts were heard to have made their way to China during March. A few South Korean cargoes have already been lined up for China next month as well, with a 1,100-metric ton parcel discussed for shipment from Onsan to Dongguan in mid-April.
Asian suppliers have pinned hopes on a Chinese market recovery, following the removal of COVID-19 restrictions and signs that an economic revival would be taking place in the country this year. Demand from the transportation and industrial segments has picked up, but it was still behind levels seen in pre-COVID years, according to sources. The Chinese government’s economic growth target of about 5% for 2023 was more conservative than previously expected. For 2022, Chinese authorities had predicted a growth rate of 5.5%, but it actually hit around 3% due to the strict COVID-19-related restrictions imposed by the Chinese government, another conference speaker noted.
The heavy-viscosity grades were generally more strained in Southeast Asia this week, particularly those within the Group I segment. Demand for Group I remained strong in countries such as Indonesia and Thailand and buyers appeared willing to up their bids in order to secure product. A 4,200-ton cargo made up of three grades and solvents was mentioned for shipment from Singapore to Port Klang, Malaysia, in mid-March. A 1,000-ton lot was also on the table for lifting in Mailiao, Taiwan, to Port Klang in late April.
Indian buyers have also been more actively seeking heavy-viscosity base oil cargoes over the last few weeks. Many consumers were meeting most of their requirements through locally-produced base oils. Nevertheless, several South Korean, European and Southeast Asiancargoes were expected to move to India, although Indian importers had to compete with Southeast Asian buyers to secure cargoes.
Another problem appeared to be the fact that most of the cargoes on offer involved light grades, when buyers were mostly in need of heavy-viscosity imports. A 3,500-ton cargo was discussed for shipment from Malacca, Malaysia, to Chennai at the end of March. Around 10,000 tons to 15,000 tons were expected to be shipped from Ulsan, South Korea, to West Coast India and the United Arab Emirates in mid-April. A 5,500-ton lot was mentioned for possible shipment from Singapore to Jawaharlal Nehru Port Trust in early April. About 2,000 tons were on the table for prompt shipment from Daesan, South Korea, to Kandla. Approximately 18,000 tons to 24,000 tons were discussed for lifting in Sitra, Bahrain, and/or Ras Laffan, Qatar, to West Coast India at the end of March.
Spot base oil prices were generally stable this week, supported by fairly balanced supply and demand, although some of the heavier grades saw moderate upward adjustments on tighter conditions and higher buying and selling ideas. The price ranges portrayed below reflect discussions, bids and offers, as well as deals and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were steady from the previous week. Spot prices for the Group I solvent neutral 150 grade were heard at $920/t-$950/t, and the SN500 was unchanged at $1,030/t-$1,070/t. Bright stock was holding at $1,290/t-$1,330/t, all ex-tank Singapore.
Prices for the Group II 150 neutral were assessed at $970/t-$1,010/t, and the 500N remained at $1,020/t-$1,070/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $790/t-$830/t, but the SN500 edged up by $10/t to $850/t-$890/t. Bright stock prices were hovering at $1,070/t-1,110/t, FOB Asia.
The Group II 150N was assessed at around $860/t-$900/t FOB Asia, and the 500N and 600N cuts climbed by $10/t to $890/t-$920/t, FOB Asia.
In the Group III segment, prices were stable. The 4 centiStoke was unchanged at $1,520-$1,560/t, while the 6 cSt was heard at $1,490/t-$1,530/t. The 8 cSt grade was holding at $1,210-$1,250/t, FOB Asia, for fully approved product.
Upstream, crude oil futures regained some territory on Thursday after falling to 15-month lows in the previous session as investors’ fears were somewhat assuaged after Swiss regulators promised assistance to embattled Credit Suisse. However, market sentiment remained fragile and uncertainties about crude oil demand in coming months weighed on futures.
On March 16, Brent May futures were trading at $74.51 per barrel on the London-based ICE Futures Europe exchange, from $83.50/bbl on March 9.
Dubai front month crude oil (Platts) financial futures for April settled at $72.14 per barrel on the CME on March 15, compared to $80.42/bbl on March 8.
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.
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