Asia Base Oil Price Report

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Firm crude oil and feedstock prices and tightening supplies either offered support to current price ideas or pushed prices higher for a majority of API Group I and Group II base oil grades in Asia. By contrast, Group III cuts were exposed to downward pressure due to ample availability, but producers were likely to adjust plant production rates in coming weeks in order to reduce the product overhang. Participants in Japan were keeping an eye on Typhoon Yun-yeung, which was expected to make landfall in the southern part of the country on Friday and bring heavy rains, strong winds and possible flooding.

Group I and Group II base oils have been enjoying brisk buying interest in Asia and as a result, producer inventories have been declining. The situation was compounded by the fact that a few refiners were opting for streaming more feedstocks into fuels production and have reduced base oil output. Ongoing and upcoming turnarounds together with unplanned plant outages in the region were also impacting supply levels.

The Hyundai Oilbank refinery in Daesan, South Korea, which was reported to have suffered a fire on Aug. 25, had cut the supply of feedstocks to run the affiliated Hyundai and Shell Base Oil Co. Group II base oil plant. As a result, the base oils unit was shut down for about a week, with production anticipated to resume on Sept. 1, according to sources. Spot shipments had been restricted as a result of the outage, but term obligations were still expected to be met.

This outage in South Korea exacerbated an already tight Group II supply scenario as a number of other producers have scheduled turnarounds over the next few weeks.

The sole Taiwanese Group II producer, Formosa Petrochemical, was heard to be planning to shut down its plant in Mailiao for a two-month turnaround in October. The producer has been building inventories to cover term requirements during the outage but has limited its spot sales in the region and also its shipments to China. Taiwan also often exports Group II base oils to India.

In India, Bharat Petroleum was understood to have scheduled a turnaround at its refinery in Mumbai this month which will result in a partial shutdown of the base oils plant, affecting Group II production.

Group I availability has also tightened on keen buying interest for Southeast Asian products, particularly Thai base oils, and plant shutdowns in Japan. Thai Group I supplies were said to be strained due to robust domestic demand amid more optimistic economic prospects in the country, coupled with healthy buying interest from regional blenders. Indonesia also offered a few small Group I spot cargoes, but output has not been high as the local refiner has reportedly allotted more feedstocks for fuel production and trimmed base oil operating rates.

In Japan, a small fire broke out at the Eneos Mizushima-B refinery in Kurashiki, Japan, on Aug. 23, but the fire was contained quickly and did not cause injuries or production disruptions, local media reported. Eneos was also preparing to take down its Mizushima-A Group I plant for an extended turnaround, starting in late August to early September, which was expected to last three months.

Eneos has also planned the permanent closure of its Wakayama refinery, which produces Group I base oils, by October of this year, following the permanent shutdown of the company’s Negishi CDU 1 and base oils plant in October 2022.

These plant events have combined with a sudden increase in buying appetite for base oils as some buyers had postponed purchases for a while and were now eager to beat further price increases as crude oil and feedstock values continued on an upward trek.

This week, Brent crude oil futures jumped to levels near $91 per barrel for the first time in 10 months as Russia and Saudi Arabia announced their decision to extend production cuts through the end of 2023, fanning concerns about supply shortages during the winter months in the Northern Hemisphere.

On Sept. 7, Brent crude November futures were trading at $89.99 per barrel on the London-based ICE Futures Europe exchange, up from $86.07/bbl for October futures on Aug. 31.

Dubai front month crude oil (Platts) financial futures for October settled at $90.76 per barrel on the CME on Sep. 6, from $86.16/bbl for September futures on Aug. 30.

The higher crude oil prices did not seem a huge concern for some Chinese refiners, who have been able to acquire heavily discounted Russian oil since the Russian war on Ukraine started. China also built hefty crude inventories over the first half of the year. Base oil demand in China remained lackluster, and interest in imports has been lukewarm at best. Despite reduced run rates at domestic base oil facilities, blenders appeared able to maintain output through the utilization of local supplies mainly, but some grades were heard to have tightened due to the fact that China has a structural deficit of heavy-viscosity cuts such as bright stock. Importers were heard to be looking for bright stock cargoes but appeared resistant to the higher offers circulating the market this week.

Nevertheless, demand in general was on the slow side in China due to uncertainties triggered by lower economic growth than anticipated, and ailing conditions in key segments such as construction and real estate development. Reduced industrial output because of lackluster consumer goods sales and weaker demand for some Chinese exports also meant lower industrial lubricant consumption.

The start-up of the new Hongrun Petrochemical Group III facility in China only added pressure to the amply supplied Group III segment in Asia. Interest in Group III has been steady, but supplies had grown substantially as most facilities in Asia and the Middle East were running well, and prices have come under pressure.

The unexpected shutdown of the Hyundai and Shell Base Oil Co. facilities mentioned above resulted in reduced base stock availability from this supplier, but other South Korean producers appeared to have concluded several transactions for September, including some shipments to China. A 1,500-metric ton cargo was mentioned for shipment from Onsan to Zhenjiang in early September, together with another cargo bound for Jingjiang on the same dates. About 2,800 tons were expected to be shipped from Onsan to Wakayama, Japan, in mid Sep. A 2,000-ton parcel was quoted for lifting in Yeosu to Tanjung Priok, Indonesia, in late Sep. A 2,000-ton cargo was likely to be shipped from Yeosu to Haiphong, Vietnam, in late Sep. Another 1,000-ton lot was on the table for lifting in Onsan to Vietnam in early October.

There appeared to be revived buying interest for imports in India, where demand had been languishing due to the monsoon season and a related slowdown in transportation and industrial activities, but the rainy season was now nearing its end. Buyers were on the lookout for fresh cargoes and offers have climbed given a tightening supply scenario in Asia.

South Korean suppliers were in discussions to finalize shipments to India. About 7,000 tons to 12,000 tons were expected to be shipped from Onsan to Mumbai in the first half of September. A 3,500-ton parcel was expected to be shipped from Ulsan, South Korea, to Mumbai in mid-October.

Several other cargoes were also being negotiated, as domestic supplies were plentiful but not expected to cover the revitalized demand, and U.S. and Taiwanese spot shipments – which typically have made up a significant portion of Indian imports – have been largely absent as supply in the U.S. has tightened and the Taiwanese producer was preparing for a turnaround. Given more limited options, buyers have had to accept steeper offers for Group I and Group II cargoes, with CFR India indications moving up between $10 per metric ton to $30/t. Group III prices were under pressure as there were plentiful Asian and Middle Eastern supplies amid limited buying interest.

Base oil spot price assessments were mixed again in Asia this week, with prices for a number of grades edging up, some remaining unchanged from the previous week, and others weakening. 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 mostly steady. The Group I solvent neutral 150 grade was unchanged at $800/t-$830/t, and the SN500 was stable at $920/t-$960/t. Bright stock was hovering at $1,070/t-$1,110/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were assessed at $930/t-$970/t and the 500N was also steady at $990/t-$1,030/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was higher by $20/t at $690/t-$730/t, but the SN500 jumped by $40/t to $830/t-$870/t. Bright stock prices were up by $20/t at $880/t-920/t, FOB Asia.

The Group II 150N was assessed up by $10/t at $810/t-$850/t FOB Asia, and the 500N edged up by $10/t as well to $860/t-$900/t, FOB Asia.

In the Group III segment, 4 centiStoke and 6 cSt prices fell again this week due to plentiful supplies and competition among suppliers. The 4 cSt was assessed lower by $10/t at $1,380-$1,410/t, and the 6 cSt also dipped by $10/t to $1,340/t-$1,380/t. The 8 cSt grade was unchanged at $1,070-$1,110/t, amid thin discussions. All indications are FOB Asia for fully approved product.

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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