The coronavirus specter was still looming over business in Asia, with some countries still under partial lockdowns and others on alert as new infection spikes have surfaced. Nevertheless, market participants remained cautiously optimistic that the gradual return to activities would result in improved demand for base oils and lubricants.
While a few signs of an uptick in buying interest have emerged, suppliers were well aware that it would take months, or perhaps years, for conditions to return to pre-pandemic levels.
Aside from the direct demand destruction on account of the lockdowns, which resulted in the population having to stay home and not using their vehicles, the new measures imposed in order to allow the reopening of business were a burden on many companies.
Factories were expected to resume manufacturing, but with reduced shifts and social distancing partitions in place, leading to lower production rates and reduced consumption of industrial and process oils.
The automotive industry – one of the main segments served by the base oils and lubricants sector – has been hit by reduced manufacturing operations, as well as a slump in auto sales. The slowdown has reverberated in related fragments of the industry such as tire and components manufacturing.
Many suppliers have pinned their hopes on a demand recovery in India and China, which typically attract large volumes of base oils from within the region and beyond. These markets have not absorbed nearly as much product over the last couple of months as before the virus outbreak.
Suppliers who regularly supply these two countries, such as those from South Korea, Singapore, Taiwan, the United States and the Middle East, have had to look for alternative takers, but with the whole world suffering similar negative effects from the Covid-19 pandemic, there were not many opportunities to place material elsewhere.
As a result, a majority of base oil and lubricant suppliers had reduced operating rates when the pandemic started as inventories mounted and demand weakened, and storage had become limited too.
Additionally, the early drop in demand for fuels such as gasoline and jet fuel drove many refiners to cut run rates, which impacted output of all refined products. However, some refiners have started to favor output of diesel over other products as prices have improved, while margins have thinned with the strengthening of crude oil values.
It was not clear when the base oil operating rates would be ramped up, but sources did not expect this situation to change for a couple of months as demand has not increased substantially yet. However, the upcoming scheduled turnarounds at a number of plants may drive some of these refiners to increase production rates if certain grades start tightening.
At the same time, some producers have seen healthy base oil uptake over the last couple of weeks as buyers perceived prices to have reached a bottom, with Thai suppliers reporting being sold out of API Group I spot availability.
Southeast Asian buyers were on the lookout for additional Group I cargoes as they feared prices would move up in coming weeks, with some offers for European cargoes on the table, but no reports of concluded transactions. Rising Group II requirements in Southeast Asia also attracted a number of Northeast Asian offers.
The substantial base oil supply and lackluster demand continued to exert pressure on spot prices, but bids and offers appeared to have stabilized as players assessed the “new normal” for the market and what their future product needs would be. Sources also reiterated that availability of the heavy grades was more limited in China as producers favor output of the lighter grades on the perception that they are of better quality.
Ex-tank Singapore assessments for the Group I solvent neutral 150 grade were holding at $510/t-$550/t this week, while the SN500 was at $530/t-$570/t. Bright stock was heard at $650/t-$680/t, all ex-tank Singapore.
The Group II 150 neutral was steady at $520/t-$540/t and the 500N at $570/t-$610/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged at $440/t-$460/t, and the SN500 was holding at $450/t-$480/t. Bright stock was assessed at $540/t-560/t, FOB Asia.
Group II 150N was steady at $420/t-$450/t FOB Asia, while the 500N and 600N cuts were hovering at $450/t-$470/t, FOB Asia.
In the Group III segment, the 4 centiStoke was holding at $670-$710/t and the 6cSt at $680/t-$720/t. The 8 cSt grade was assessed at $660-680/t, FOB Asia for fully approved product.
Upstream, the upward trend of crude oil futures appeared to have stalled on renewed concerns about a supply glut brought about by the potential of increased production from some OPEC+ members. Numbers remained volatile as Saudi Arabia seemed reluctant to continue with its output cuts.
Brent August futures were trading at $39.39 per barrel on the London-based ICE Futures Europe exchange on June 4, up from $34.22/bbl on May 28.
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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