Group II spot prices finally succumbed this week, dropping by around U.S. $10 to $20 per metric ton, depending on the cut, volume and origin of the cargoes. Heavy grades appear to be especially vulnerable, because worldwide supply of these oils is growing. However, appetite for Group II in Asia is not as strong as it is for Group I oils.

There is evidence of this situation in India, where imported cargoes of Group I solvent neutral 500 were heard priced at similar levels to those of Group II 500 neutral – around $1,100-1,110/ton CFR India, although Group II cargoes should typically be priced higher than Group I material because the former perform better in some big-volume finished lubricant categories.

The lower prices for Group II cargoes can be partly attributed to the fact that a few very competitively priced cargoes originating in the U.S. have recently made their way to India on the back of a U.S. market imbalance.

Given a tightening of the U.S. domestic market, these movements have become more rare in the last few weeks. More cargoes are now anticipated to be offered into India in coming months, since the new Chevron Group II plant in Pascagoula, Mississippi, has started commercial production. U.S. producers are likely to look for alternate outlets for their Group II oils, and India has traditionally been a target.

Furthermore, the imminent introduction of base oils from the Hyundai Oilbank-Shell Group II plant in Daesan, South Korea, in August, and the fourth-quarter start-up of the Abu Dhabi National Oil Company (ADNOC) plant in United Arab Emirates – which will predominantly produce Group III cuts, but also around 100,000 t/y of Group II material – will only add to the oversupply situation.

Sources commented that Hyundai Oilbank-Shell had been offering very attractive pricing for their products in order to secure new customers, and this was pulling down Group II prices.

Bright stock is the exception to the trend of Asian markdowns because prices have actually firmed since June, with numbers now hovering close to $1,200/t FOB Asia. A few transactions have been reported within a $1,180/t to $1,190/t FOB Asia range, and offers are inching up. Prices have been supported by healthy demand and tight supply, sources explained.

Light oils continue to move at a reasonably brisk pace, but a few producers are worried that this segment has also come under price pressure as base oil demand in general tends to decline in August and September.

Demand in China has been particularly disappointing, and given that few plant turnarounds are scheduled the rest of this year, there is concern that inventories are mounting.

More producers may have to start cutting production rates, sources conjectured, with Formosa Petrochemical Corp. in Taiwan having already implemented such a plan. The producer has trimmed its Group II production rates to slightly below 80 percent of capacity, reducing the amount of spot availability, but still insuring that all of its term customers continue to receive agreed volumes.

Aside from the permanent closing of the CPC-Shell Group I plant in Taiwan in September or October, there have been no reports of shutdowns scheduled in the region until the end of the year. In fact, a couple plants that have been off-line for maintenance are being brought back on stream. Such is the case for JX Nippons 250,000 t/y Group I unit in Mizushima, Japan, which is expected to be restarted in August, following a two-month maintenance turnaround. Sources also reported that PetroChinas Lanzhou plant would be resuming production in late August. The plant manufactures 300,000 t/y of Group I oils and 400,000 t/y of Group II cuts.

In the Group III segment, a northeast Asian producer mentioned having received an increased number of inquiries for spot base oils because the Malaysian producer, Petronas, does not have any spot tonnage to offer.

Spot prices for the Asian market have undergone some revisions this week to better reflect current bid and offer levels, as well as concluded business. On an ex-tank Singapore basis, Group I SN150 was holding at $1,080-$1,120/t. SN500 was assessed at $1,070-$1,120/t, reflecting a $10/t downward adjustment, and bright stock was mentioned at $1,210-$1,270/t.

On an FOB Asia basis, Group I SN150 was steady at $990-$1010/t FOB. SN500 was slightly lower at $1,000-$1,020/t FOB, reflecting a $10/t drop from the previous week. Bright stock prices were reported at $1,170-$1,190/t FOB, with the low end of the range inching up by $10/t. Group II prices underwent a downward revision, with 150N heard at $1,010-$1,030/t FOB Asia, reflecting a $10-20/t decrease. The 500N cut was assessed at $1,010-$1,040/t FOB Asia, revealing a $20/t drop week-on-week.

In the Group III segment, 4 centiStoke and 6 cSt oils were mentioned at $1,030-$1,080/t FOB Asia, and the 8 cSt grade was heard at $1,020-$1,040/t FOB Asia, although trading was subdued.

Most shipping inquiries involved cargoes moving out of South Korea, with a 6,500-8,500-ton lot being discussed from Ulsan or Yeosu to Chennai and Mumbai, India, for August 1-15 lifting. A cargo of 1,000 tons plus an additional 500 tons was expected to be shipped from Yeosu to Merak on August 10-20. A 2,000-ton parcel was on the table from Yeosu to Ho Chi Minh, Vietnam, for August 11-20 shipment. A 2,000-ton cargo of two grades was in discussions for Yeosu to Hamriyah, United Arab Emirates, for August dates. A 4,000-5,000-ton cargo was mentioned for shipment from Daesan to Mumbai in mid-August. This parcel was perhaps quoted to check the freight rates from the new Hyundai Oilbank-Shell plant to India.

Upstream, September ICE Brent Singapore futures were trading at $107.73 per barrel in afternoon trading July 28, compared with numbers at $107.02/bbl on July 21.

Gabriela Wheeler, based in Japan, can be reached directly at gabriela@LubesnGreases.com