Demand started to show signs of strengthening while spot supply has tightened, propping up prices despite lower crude oil and feedstock values. Some refiners reduced base oil output in favor of fuels due to more favorable margins, but the tide appeared to have turned and base stock production has become more attractive, with the exception perhaps of fundamentals in India. Promising prospects for an economic recovery in China were also feeding expectations of increased base oil and lubricants consumption in that key market.
A couple of South Korean suppliers were heard to have secured business into China as demand for imports has strengthened due to limited domestic availability of certain grades, with particular interest seen in API Group II and Group III supplies. A few Chinese base oil plants were either still running at reduced rates or shut down for maintenance or inspections. The race to increase the number of electric vehicles that are on the road in China was also anticipated to play a role in the type of lubricants and automotive fluids required in coming years, perhaps limiting the use of conventional base oils. At the same, the government’s phasing out of incentives for automobile purchases has resulted in a sharp drop in auto sales since the beginning of the year. Nevertheless, robust manufacturing activity would call for increased volumes of base stocks used in industrial applications and heavy-duty vehicles, sources noted.
While Chinese domestic base oil prices were still deemed competitive against imports, a number of cargoes were being considered for shipment to China, with about 2,000 metric tons quoted for lifting in Onsan, South Korea, to Huizhou in mid March. A 2,200-ton parcel was on the table for shipment from Ulsan to Tianjin in late February. Additionally, about 7,000 metric tons were quoted for lifting in Ruwais, United Arab Emirates, to Nantong in mid March.
Activity has also started to pick up in Southeast Asia, as blenders prepare lubricant inventories for a busier time of the year and increased travel following almost three years of subdued conditions due to the COVID pandemic. At the same time, economic uncertainties continued to put a damper on business, with buyers preferring to purchase smaller cargoes to limit exposure to price fluctuations and possibly disappointing performance in downstream markets. With one plant in Indonesia heard to be undergoing maintenance and availability of light grades from Japan and Thailand deemed tight, Group I supplies were generally strained in the region, while inventories of other grades have also been run down. At the same time, a widening price gap between Group I and Group II grades may encourage buyers to seek more Group I cuts in the coming weeks.
There has been increased interest in imports from various sources, with several cargoes expected to be moved from South Korea and the Middle East to Southeast Asia next month. A 4,400-ton parcel of two base oil grades was anticipated to be shipped from Yanbu, Saudi Arabia, to Singapore in mid March, and about 3,000 tons were likely to be lifted in Onsan to Merak, Ciwandan and Gresik, Indonesia, in early March.
Separately, there were also 1,000 tons mentioned for shipment from Sri Racha, Thailand, to Manila, Philippines, in late March or early April. A 1,000-ton parcel was also quoted for shipment from Mailiao, Taiwan, to Port Klang, Malaysia, in mid April.
In India, buying activity has remained healthy, with domestic supply meeting a growing portion of the country’s demand. It was heard that most refineries have been running at top rates and enjoying the advantage of processing discounted Russian crude oil. A couple of refiners may continue to maximize the production of diesel versus that of base oils given high diesel retail prices and strong fuel consumption.
Several South Korean cargoes have been discussed for shipment to India over the last week, including a 1,500-ton parcel of three base oil grades for prompt shipment from Ulsan, South Korea, to Mumbai, and 5,000 tons to 7,000 tons for lifting in Yeosu or Ulsan to Mumbai in the first half of March. A 3,000-ton cargo was on the table for shipment from Pyongtaek or Daesan to West Coast India at the end of February or early March. About 4,000 tons were also expected to be lifted in Ulsan or Daesan for delivery in Mumbai in second half Feb. Additionally, there were reports of a large cargo possibly moving to India from Spain.
Group III demand remains robust in the region, and shipments to other regions have also done well, with South Korean products continuing to move regularly to the United States. Prices were deemed generally stable because of balanced supply against demand.
Improving buying interest and tightening base stock availability supported stable pricing in Asia this week. 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 holding from the previous week. Spot prices for the Group I solvent neutral 150 grade were steady at $920/t-$950/t, and the SN500 was heard at $1,030/t-$1,070/t. Bright stock was firmly positioned within a $1,290/t-$1,330/t range, all ex-tank Singapore.
Prices for the Group II 150 neutral were stable at $970/t-$1,010/t, and those for the 500N at $1,000/t-$1,050/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged at $790/t-$830/t, and the SN500 at $840/t-$880/t. Bright stock prices were hovering at $1,070/t-1,110/t, FOB Asia.
The Group II 150N was unchanged at $840/t-$880/t FOB Asia, and the 500N and 600N cuts were assessed at $860/t-$890/t, FOB Asia.
In the Group III segment, prices were largely stable as well. The 4 centiStoke was assessed at $1,520-$1,560/t, and the 6 cSt was hovering at $1,490/t-$1,530/t. The 8 cSt grade was gauged at $1,210-1,250/t, FOB Asia, for fully approved product.
Upstream, crude oil futures reversed course on Thursday, after Brent crude posted its biggest single-day loss in seven weeks a day earlier. The change came about because analysts took into account the possibility of higher demand from China against lackluster consumption in the United States and other countries. In the previous session, futures were dragged down by reports that the U.S. Federal Reserve had concluded in a meeting on Wednesday that the risks of high inflation remained a key factor shaping monetary policy and warranted further rate hikes until inflation was under control, according to Reuters.
On Feb. 23, Brent April futures were trading at $80.88 per barrel on the London-based ICE Futures Europe exchange, from $85.16/bbl on Feb. 16.
Dubai front month crude oil (Platts) financial futures for March settled at $78.38 per barrel on the CME on Feb. 22, compared to $82.62/bbl on Feb. 15.
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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