The base oils market in Asia is about to enter the new year on quite a dissimilar footing from the one seen a year ago. Oversupply appears to be the buzzword of the day, with participants expressing concern at the fact that this condition is not only affecting base oils, but also certain segments of the finished lubricants business as well.
The supply-demand situation was very different at the end of 2017 than it is today. The global base stock market was still reeling from the effects of natural disasters and plant accidents that impacted availability for much of the second half of the year.
Hurricanes Harvey pummeled the United States Gulf Coast – where a large number of base oil facilities are located – in late August 2017, causing unprecedented flooding and destruction and forcing refiners to shut down production.
As a result, the U.S. base stock market not only experienced severe tightening of domestic supply – mainly ofAPIGroup II barrels – but also saw its export volumes decimated. Suddenly, the stream of U.S. products that regularly reached Asian shores stopped flowing, causing a regional tightening of supply. In fact, several Asian spot cargoes made their way to the U.S. instead, to cover the shortfall caused by the unplanned shutdowns, and exacerbating the spot supply shortage in Asia.
This also coincided with turnarounds and reduced operating rates at various Asian facilities, together with a plant fire in January 2017 that putTonenGenerals (now JXTG Holdings) Wakayama Group I plant in Japan out of commission for more than a year. The plant only resumed full production in March 2018.
ThePearl gas-to-liquids refinery in Ras Laffan, Qatar, a Shell and Qatar Petroleum joint venture that produces Group II and III base oils, had been unexpectedly shut down in February 2017 and remained off-line for almost six months, also reducing availability in the region.
The tighter conditions, together with steep crude oil values, resulted in higher base oil spot pricing in Asia throughout the first quarter of 2018.
Conversely, the base oils market is starting 2019 generally oversupplied, with new capacity looming large on the horizon, demand described as lackluster, and crude oil values having plummeted to 17-month lows.
A couple of new and expanded base oil plants were anticipated to come on stream in China in early 2019 – includingHainan Handi Sunshine Petrochemicals andHengli Petrochemicals Group II/III units – whileExxonMobils Group II large plant in Rotterdam, the Netherlands, was also slated to start operations in the first quarter, and was expected to significantly alter base oil trade patterns.
Another factor that was impacting Asia base oil prices was the presence of additional supply from the Middle East. Market observers reiterated that Middle Eastern Group III suppliers have been steadily gaining share in Asia in 2018, as prices were often very attractive compared to Group II and III options in the region.
On the macro-economic level, the ongoing trade war between the U.S. and China – which has been put on hold over a three-month truce period – has affected industry forecasts and was expected to negatively impact demand of petrochemicals, including base oils.
Additionally, the global economic growth rate is expected to slow down, compared to previous years.
According to an article posted on the International Monetary Funds blog, the global economy started 2018 on an upbeat note, buoyed by a pick-up in global manufacturing and trade through 2017. As investors confidence in the global economic outlook lost steam, so did the upswing.
Chinas economic expansion is anticipated to contract next year, with the World Bank predicting that Chinas growth rate will slow from 6.5 percent in 2018 to 6.3 percent in 2019, as policy support eases and as fiscal policies turn less accommodative.
Some base oil prices were assessed much lower in December this year than a year ago, but some were higher, depending on availability and demand levels.
On Dec. 27, 2018, Group II 150N was heard near $660/t-$680/t FOB Asia, down $20/t from the previous week, while the 500N and 600N cuts were gauged near $700/t-$720/t, FOB Asia.
By comparison, about a year ago, on December 18, 2017, Group II 150N was hovering at $620/t-$640/t, and the 500N and600N grades were gauged at $770/t-$810/t, all FOB Asia. Brent futures were trading close to $65 per barrel at the time, and surpassed the $70 per barrel mark for the first time since December 2014 a couple of weeks later.
This week, Brent February futures continued on a downward trek and were trading at $53.33/bbl on the London-based ICE Futures Europe exchange on Dec. 27, down from $57.51/bbl on Dec. 20.
A majority of spot base oil price ranges were assessed as stable this week, although a couple of spreads were adjusted down to reflect current discussion levels, with little fresh business heard concluded.
Ex-tank Singapore prices for Group I solvent neutral 150 were lower by $10/t at $750 per metric ton to $770/t, while SN500 was also lower by $10/t at $770/t-$800/t. Bright stock was holding at $880/t-$900/t, all ex-tank Singapore.
Group II 150 neutral was heard at $780/t-$810/t and 500N was adjusted down by $10/t at $790/t-$810/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed at $690/t-$710/t, while SN500 was hovering at $680/t-$700/t. Bright stock was steady at $810/t-$830/t, FOB Asia.
As mentioned above, Group II 150N was revised down to $660/t-$680/t FOB Asia, while the 500N and 600N cuts were heard near $700/t-$720/t, FOB Asia.
In the Group III segment, the 4 centiStoke grade was steady at $850-$870/t and 6 cSt was at $860/t-$880/t. The 8 cSt grade was assessed at $710/t-$740/t, FOB Asia.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.