Despite a lackluster start to the spring season, Asian base oil prices were mostly stable, supported by a balanced supply and demand ratio and signs of healthier buying interest starting to come into view in some countries such as India. Volatile crude oil and feedstock prices added an element of uncertainty, keeping some buyers on the sidelines as they waited for a clearer indication on where base oil prices were headed.
One of the markets that still captured suppliers’ attention was China’s, since the country commands an impressive share of the world’s base oil demand at around 22 percent, according to an analyst’s presentation at the recent ICIS Asia Base oils and Lubricants conference in Singapore. This means that trends in that country can make or break the region’s overall performance. During the COVID pandemic, strict lockdowns and other constraints, and late last year, surging infection rates as the restrictions were called off resulted in reduced demand for lubricants and base oils. This led to oversupply conditions and falling base oil prices in Asia.
But China’s trajectory seems to have steadied and there are expectations that it will attain a 5% GDP growth rate in 2023, compared to about 3% in 2022, according to several economic reports. The automotive and industrial segments expected to see healthy growth, and this might result in improved demand for base oils, lubricants and fuels. Aside from domestic base oils, the growing demand will need to be satisfied by imports given that China has a structural deficit of the heavy-viscosity grades like the API Group I bright stock. On the other hand, some base oil plants in China were heard to be running at reduced rates to avoid a product overhang, and a couple of units were shut down for maintenance.
If the country starts importing large quantities of heavy grades, it draws away product from the regional supply system. Chinese importers sometimes have to compete with consumers in Southeast Asia for the same barrels of base oils. This month and in February, large Group II volumes were also imported from Taiwan. The sole Taiwanese Group II producer had previously been shipping product to Southeast Asia, India and even the Americas, but a large part of its monthly output has now started to move back to China, which had been a regular occurrence before the pandemic started.
At the same time, there were reports that fewer South Korean cargoes were being discussed for shipment to China in coming weeks. This may be partly attributed to the fact that several cargoes have been concluded to other destinations, and there will be less material available as a South Korean Group II and Group III producer plans to take its base oils unit down for maintenance for approximately 45 days in mid-May. Nevertheless, several South Korean cargoes were being discussed in shipping circles this week, including a 4,000-metric ton parcel for shipment from Onsan to Nantong and Jingjiang the first week of April. A 2,200-ton parcel was quoted for lifting in Onsan to Huizhou in mid-April as well.
Aside from China, there were South Korean cargoes discussed to other destinations. A 1,000-ton parcel for lifting in Pyongtaek to Guayaquil, Ecuador, for any dates in April, and a 1,200-ton cargo from Onsan to Singapore in early April. A 4,800-ton cargo was mentioned for possible shipment from Ulsan to Havre, France, as well.
One bright spot for suppliers this week appeared to be India, given that demand has started to pick up, particularly for light grades. Improved industrial activity and demand from the automotive segment have led to an increase in base oil requirements, according to sources. There continued to be competition between imports and domestic base stocks, which refiners in India were able to offer at attractive prices as they were being produced from heavily discounted Russian crude oil.
Several import cargoes have recently arrived in India, and more were on their way from the United States, Europe and the Middle East. Even so, there were discussions to finalize additional shipments in April. Prices in India were deemed fairly stable, although there was downward pressure on heavy-vis grades and bright stock. A 17,000-ton cargo was mentioned for shipment from Cartagena, Spain, to Mumbai in late March. 15,000 to 20,000 tons were being discussed for shipment from Daesan or Pyongtaek, South Korea, to West Coast India around April 20-25. Five thousand tons to 9,000 tons were also on the table for shipment from Yeosu, South Korea, to Mumbai in April.
In Southeast Asia, buyers were on the lookout for cargoes within the region, Northeast Asia and the Middle East. There was healthy demand noted in Vietnam and Indonesia, with Singapore being one of the main source countries of base oil shipments. Buying interest for Group I heavy-viscosity grades has also been observed in Thailand, but there have also been offers of bright stock of Thai origin for export. A 3,000-ton parcel was under discussion for shipment from Rayong, Thailand, to Singapore in late April. A second 3,000-ton lot was on the table for lifting in Cilacap, Indonesia, to Ulsan, South Korea, the first week of April. An 11,000-ton cargo was quoted for shipment from Port Klang, Malaysia, and Ulsan to the Caribbean at the end of March to early April. A 1,600-ton cargo was mentioned for shipment from Yanbu and Jeddah to Singapore in mid-April. A 3,200-ton lot was expected to be shipped from Cilacap, Indonesia, to Merak, Indonesia, in early April. About 3,000 tons were expected to be shipped from Rayong, Thailand, to Chittagong, Bangladesh, at the end of April.
Spot base oil prices were mixed again this week. Some grades saw moderate upward adjustments on tighter conditions, but the Group III 8 cSt was exposed to downward pressure due to weak demand and abundant supply. The price ranges portrayed below reflect discussions, bids and offers, as well as deals and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were steady from the previous week. Spot prices for the Group I solvent neutral 150 grade were assessed at $920/t-$950/t, and the SN500 at $1,030/t-$1,070/t. Bright stock was unchanged at $1,280/t-$1,320/t, all ex-tank Singapore.
Prices for the Group II 150 neutral were holding at $990/t-$1,030/t, and the 500N was mentioned at $1,040/t-$1,090/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $790/t-$830/t, but the SN500 edged up by $10/t to $870/t-$910/t. Bright stock prices were hovering at $1,060/t-1,100/t, FOB Asia.
The Group II 150N was assessed steady at $860/t-$900/t FOB Asia, but the 500N and 600N cuts moved up by $10-20/t to $920/t-$960/t, FOB Asia.
In the Group III segment, prices were stable to soft. The 4 cSt was unchanged at $1,520-$1,560/t, while the 6 cSt was holding at $1,490/t-$1,530/t, but the 8 cSt grade was adjusted down by $10/t to $1,190-1,230/t, FOB Asia, for fully approved product.
Upstream, crude oil futures strengthened on Thursday given an unexpected drop in U.S. crude inventories to a two-year low and a suspension in exports from Iraq’s Kurdistan region following the halt of an export pipeline.
On March 30, Brent May futures were trading at $78.78 per barrel on the London-based ICE Futures Europe exchange, from $76.22/bbl on March 23.
Dubai front month crude oil (Platts) financial futures for April settled at $76.77 per barrel on the CME on March 29, compared to $75.84/bbl on March 22.
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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