Light viscosity grades and bright stock continue to enjoy reasonably buoyant demand in Asia, while supply of the heavy-vis oils is slightly long and is likely to become even more abundant.
Suppliers acknowledged that base oil requirements in general have been unimpressive the past few weeks. Heavy-viscosity grades other than bright stock have been particularly lackluster, they conceded. This condition could worsen by the start of the fall/winter season, when demand for the heavy oils typically weakens. (Blenders shift to lighter base stocks at that time of year because they perform better in cold weather.)
Bright stock appears to be the exception within the heavy-vis group, as demand for this product is very healthy and prices remain firm. Sources chalk this up to the fact that bright stock cannot be easily replaced in many industrial and marine applications. Offers have been hovering at levels around $1,180 per metric ton to $1,190/t FOB Asia, with some business heard to have been concluded at these levels during the week.
Buyers mentioned that a couple of producers were willing to sell bright stock only in combination with other cuts, as a means of achieving more balanced inventories. In these cases, bright stock prices were slightly more competitive, according to sources.
The imminent closure of the CPC-Shell base oil plant in Kaohsiung, Taiwan, is expected to result in some tightening of heavy API Group I stocks, as that unit produces solvent neutral 500 and bright stock. The producer stopped manufacturing SN150 last year, following a turnaround, because of weak market economics. The CPC-Shell base oil unit will be shut down permanently ahead of the CPC refinery decommissioning in 2015.
It was heard that CPC-Shell customers had started to look for alternative sources of Group I cuts, and it appears that Indonesian producer Pertamina will more than double spot Group I exports to China this month. Demand in Southeast Asia has declined, so perhaps the supplier has some surplus on hand. In addition to slowdowns in downstream markets, activity was said to have subsided in a number of countries because of the observance of Ramadan.
A Northeast Asian supplier concurred that volumes shipped to China and Southeast Asia decreased in recent weeks, and that in comparison, demand in India had been healthier, despite the onset of the monsoon season. However, Indian requirements are anticipated to slow through the end of July because heavy rains have started in a few Indian states, and requirements are not expected to pick up again until August, when inventories are likely to be depleted.
Base oil pricing in India has improved slightly because there have been fewer cargoes arriving from the United States – where the supply/demand ratio has tightened – and also because of concerns over reduced availability from the Middle East due to ongoing political and social unrest.
Participants were also keeping an eye on the introduction of additional Group II product from the new 650,000 t/y Hyundai Oilbank-Shell joint venture in Daesan, South Korea.While the first shipment was expected to be sent to China at the end of July or early August, some industry players said it might be some time before the extra output impacts other markets, because other markets may not require Group II yet.
Meanwhile, in Japan, sources reported no disruptions from Typhoon Neoguri, which passed over Japanese territory on July 7 to 10. The typhoon lost strength after pummeling Okinawa, but there are no production facilities on that island.
In other production news, South Koreas SK Energy was forced to shut a residue hydrodesulfurization unit (RHDS) following a small fire at its Ulsan refinery on July 9, according to media reports. The restart date of the 40,000 barrels per day RHDS, which processes feedstock from a crude unit for the manufacture of fuels, and feeds into a fluid catalytic cracker was not forthcoming, the reports added. SK Lubricants operates a large Group II/III base oil unit in Ulsan, but there was no confirmation whether the incident had had any impact on the plant.
Spot prices in Asia were largely unchanged from a week ago, despite the drop in regional demand, with limited fresh business reported. On an ex-tank Singapore basis, Group I SN150 was holding at $1,080-$1,120/t. SN500 was assessed at $1,080-$1,130/t, and bright stock was mentioned at $1,210-$1,270/t.
On an FOB Asia basis, Group I SN150 was mentioned at $990-$1010/t FOB. SN500 was steady at $1,010-$1,030/t FOB, and bright stock prices were reported at $1,160-$1,190/t FOB, although participants admitted that securing product at the low end of the range was difficult.
Group II 150 neutral was steady at $1,020-$1,050/t FOB Asia, while 500N was heard at $1,030-$1,060/t FOB Asia.
In the Group III segment, 4 centiStoke and 6 cSt oils were quoted at $1,030-$1,080/t FOB Asia, and the 8 cSt grade was unchanged at $1,020-$1,040/t FOB Asia.
The shipping segment was fairly active, with a 7,000-ton parcel of four grades of base oils quoted from Ulsan or Yeosu, South Korea, to Chennai and Mumbai, India, for shipment July 20-30. A 1,000-ton cargo was on the table from the same origin to Taichung, Taiwan, for July 20-August 5 lifting. A 2,000-ton lot was being worked on for Yeosu to Tianjin, China, for August 25-29 shipment. A second 1,000-ton lot was also mentioned for Onsan, South Korea, to Tianjin for August 9-12 lifting. A 6,000-ton lot of 150N and 600N was being discussed for Yeosu to Nantong, China, for July 25-29 shipment.
Upstream, September ICE Brent Singapore futures were trading at $107.02 per barrel in afternoon trading July 21, compared with August numbers at $106.63/bbl on July 14.
Gabriela Wheeler, based in Japan, can be reached directly at gabriela@LubesnGreases.com