While supply of a number of base oils grades remains tight in Asia, additional supply coming on stream in the next few weeks, the restart of plants following turnarounds, and a slowdown in demand could lead to an oversupplied market scenario and softer prices in the long term, market sources said. However, prices were said to be holding fairly steady for the time being, buoyed by the snug supply/demand conditions.
Aside from keeping an eye on base oils availability and prices, Asian market participants were watching developments in China very closely. The Chinese economy has shown signs of cooling, and reports last week showed that Chinese manufacturing contracted at a faster pace in June than the previous month, slumping to a nine-month low. The countrys benchmark money-market rate rose to a record high after U.S. Federal Reserve Chairman Ben S. Bernanke announced that the Central Bank may start to reduce bond purchases and ease its stimulus policies later this year. The economic slowdown fueled concerns that base oils demand in China would start to decline.
To add to the pressure, new API Group II capacity will be coming on-stream in Korea in July, which could encourage lowering of base oil prices within that category.
SK Lubricants is preparing to start up its reconfigured Group II plant in Ulsan around June 28, with commercial product expected to be available in July. The producer anticipated being able to complete a few shipments within Asia in the second half of the month. The facility can produce 500N and 600N, but will initially manufacture only 500N.
Producers expressed concern that margins were suffering, and stated that further drops in prices could lead to a reduction in base oils running rates. In fact, a Taiwanese producer – whose Group I plant is currently undergoing a turnaround – is considering whether to ramp up rates once the shutdown is completed, or whether the plant should remain off-line given weak margins. The turnaround was heard to be proceeding smoothly, and the plant was expected to be restarted in early July. The producer is currently fulfilling contractual obligations, but will not have any spot availability until August, provided the plant starts in July.
For the time being, however, a majority of plants in Asia continue to run at full rates, and demand has maintained a steady course. A number of cuts remain on the tight side and few offers of spot cargoes surfaced this week as a result.
A South Korean producer whose Group III plant completed a turnaround in April/May is expected to start a one-month maintenance shutdown at its Group I/II plant in July. The producer will not be participating in the spot market until possibly September.
A second Korean supplier was also heard to be in a tight supply position and is staying away from the spot trading scene, focusing on term contract obligations instead, despite receiving numerous spot inquiries for July and August shipment.
A Taiwanese producer, whose plant will be taken off-line for maintenance in August and September, is building inventories to fulfill contractual commitments during the outage. The producer expected to ship only half of its regular monthly shipments to China in July, or approximately 20,000 metric tons, while the quantities will be further reduced to a third of its normal monthly volumes in August and September.
A second Taiwanese producers base oil plant is currently undergoing a turnaround, and the supplier is not offering any spot cargoes.
The tight supply scenario is encouraging suppliers to seek increases for July shipments, but so far few transactions have been finalized. A couple of spot deals were heard to have been concluded at a $20/ton increase over benchmark prices last week. Suppliers were hoping to continue negotiations at an industry event taking place in Singapore during June 26-27.
In terms of pricing, indications for Group I material on an ex-tank Singapore basis were assessed as stable at $1060-$1100/t for SN150, $1120-$1180/t for SN500 and $1210-$1260/t for bright stock this week.
On an FOB Asia basis, prices were heard at $950-$980/t for SN150, $1010-$1060/t for SN500 and $1090-$1140/t for bright stock.
Regarding Group II material, prices were assessed at around $980-$1030/t FOB NE Asia for 150N and at $1060-$1110/t FOB NE Asia for 500N.
Group III spot prices were largely stable within a $1030-$1080/t FOB Asia range for 4 cSt, 6 cSt and 8 cSt cuts, but some indications continued to be mentioned above $1100/t FOB Asia for small-volume transactions.
In production news, Chinese Petroleum Corp.-Shell is expected to restart its Group I production lines at Kaohsiung, Taiwan, in early July, following yearly maintenance. Most term obligations were being met as scheduled, as the supplier built stocks ahead of the outage.
Formosa plans to shut down its 600,000 tons per year Group II facility in Mailiao, Taiwan, in August and September for a routine turnaround.
S-Oil will be shutting down its Group I/II facilities in Onsan, South Korea, in July for routine maintenance, according to industry sources. The units are likely to be off-line for slightly more than a month. The producer had completed a turnaround at its Group III unit in early May.
Thailands Integrated Refinery & Petrochemical Complex (IRPC) was heard to have shut down its 60,000 t/y Group I base oils plant in Rayong for maintenance on June 19, according to sources, but this could not be confirmed. IRPC produces Group I SN150, SN500 and bright stock.
There was also talk about an unexpected technical issue at a Thai Lubes plant, but the problem apparently had no effect on base oils production.
On the shipping front, there were few inquiries for vessel space, reflecting very subdued base oil spot trading during the week. Bright stock continued to outshine the other grades, with a 1,500-metric ton parcel of 150BS expected to be shipped from Ulsan to Nantong during July 5-12. A second 1,500-ton cargo of 150 BS was being worked on to cover Sriracha to Nantong the first half of July. Finally, a 1,900-ton lot consisting of two base oils grades was discussed for Onsan-Singapore for July 1-5 lifting.
Upstream, August Brent settled in Asia at $101.82/bbl on June 25, compared to July numbers at $105.18/bbl on June 18. Prices were up week-on-week, but down from the previous session on speculation that the U.S. Federal Reserve may decide to rein in its stimulus plans.
Gabriela Wheeler, based in Japan, can be reached directly at gabriela@lngpublishing.com.