Weekly Asia Base Oil Price Report

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Base oil supplies appeared to be lengthening in Asia, a sign that consumption levels may be weakening on seasonal patterns and other factors, including economic quandaries. Prices for some grades experienced slight downward adjustments as bids and offers have inched down on growing spot availability.

Significant drops in crude oil futures over the week imbued the market with a sense of uncertainty as a sustained downward trend could start to exert pressure on base stocks, but oil futures recovered later in the week. Geopolitical conflicts and Houthi attacks on commercial vessels in the Red Sea continued to affect freight rates and logistics.

Crude oil futures tumbled to four-month lows early in the week on news that eight OPEC+ members would be phasing out their production curbs in October, but prices then jumped by over 1% on Wednesday, as hopes of an interest rate cut by the United States Federal Reserve in September outweighed demand concerns stemming from a build in U.S. crude and fuel stocks.

On Thursday, June 6, Brent August 2024 crude futures were trading at $79.99 per barrel on the London-based ICE Futures Europe exchange, from $81.86/bbl for July futures on May 30.

Dubai front month crude oil (Platts) financial futures for July 2024 settled at $78.25 per barrel on the CME on June 5, from $83.49/bbl for June futures on May 29.

While the Houthi rebels’ attacks on oil tankers and commercial ships in the Red Sea were not specifically directed at vessels carrying base oils, the fact that Middle East and Asian ship operators and suppliers have had to alter their shipping routes has impacted freight rates, sending prices to steep heights, and has put a crunch on the number of vessels that offer space on certain journeys. Additionally, shipments from Europe to destinations such as India appeared to be off the table for the time being because of the longer route and additional cost of going around the Cape of Good Hope in South Africa to avoid traversing the Suez Canal.

Supply in the API Group I and Group II segments continued to show fairly balanced conditions in Asia, but spot supplies appeared to be growing as demand has softened and production rates remained high. These fundamentals were reflected in pricing this week, with spot indications for the Group I and Group II grades remaining steady or edging down slightly.

Group III supply was ample in Asia following the restart of the SK Enmove plant in South Korea, after completion of a turnaround that started in mid-March and was completed in early May. However, the SK-Pertamina plant in Dumai, Indonesia, that was scheduled for maintenance in May, saw a postponement of the shutdown to late June/July, and will reduce regional short-term Group III inventories. The producer was expected to have built inventories to cover term requirements. Later in the year, S-Oil has scheduled a turnaround at its Onsan plant in September/October which might affect Group II and Group III availability, but the producer was expected to build inventories ahead of the outage as well.

Given the limited number of plants in Asia that produce Group I grades – most of them located in Southeast Asia and Japan – spot cargoes being offered were relatively sparce, which supported offer levels for exports from source countries such as Thailand, Indonesia, and Singapore. However, domestic demand in some of these countries has begun to decline on economic uncertainties and the arrival of the rainy season.

Chinese buying interest for Southeast Asian cargoes was tempered by the fact that demand has weakened in China and a local producer, whose plant had been off-line since March, was heard to have restarted operations in May. Nevertheless, discussions involving bright stock were ongoing, and it was heard that a Thai bright stock cargo was under consideration for possible shipment to China this month. A key Singapore Group I producer has raised its ex-tank Singapore bright stock prices for June on limited availability of this grade.

Group II supplies were expected to improve in Asia over the next few weeks as South Korean plants were running well and the Taiwanese producer, Formosa Petrochemical, was anticipated to ramp up production following several weeks of reduced output due to maintenance work at the affiliated refinery that resulted in decreased feedstock supplies. Formosa routinely ships large amounts of base oils to China, but volumes have dropped substantially since March.

The partial shutdown of Formosa’s facilities, together with ongoing maintenance at a local Chinese refinery, and a prolonged shutdown at a second plant in China that has been off-line since March had led to a tighter Group II scenario. However, the plant that has been offline since March was heard to have been restarted and was expected to begin building inventories. Two other Chinese Group II plants were expected to undergo turnarounds from June until July. Adequate domestic availability and attractive pricing had encouraged buyers to rely more heavily on local products and buying appetite for imported spot cargoes was therefore lackluster.

Another major development that may affect import volumes from Taiwan was the decision by the Chinese Custom Tariff Commission of the State Council to reinstate tariffs on several petrochemical imports from Taiwan – which had so far benefitted from preferential tariff rates under the Economic Cooperation Framework Agreement – with a 6% duty expected to be imposed on base oils as of June 15.

With an increased number of plants producing Group III in China nowadays, interest in imported volumes from the Middle East and Northeast Asia has weakened, despite the turnaround at a local Group III unit that started in late April and was expected to last until late May to early June. A second producer was heard to be offering competitive pricing to gain market share.

In India, the surprising results of India’s general elections – which were held between April 19 and June 1 – sent stocks tumbling on Monday, as Prime Minister Narendra Modi secured a third term, but his party, Bharatiya Janata Party, lost its parliamentary majority, fueling concerns about the Indian leader’s ability to pursue his pro-business agenda. “Its messaging on the economy, promoting India as the world’s fastest growing major economy, fell flat in a country facing high levels of inequality and youth unemployment. Although India is seen as a potential beneficiary of the West’s push to de-risk or diversify supply chains away from China, manufacturing as a share of GDP has stalled while foreign investment inflows have declined,” according to an article by the world policy institute Chatham House. Apple, GE Aerospace, Starbucks and Nvidia have recently made high-profile deals to expand, produce or sell their products in India.

Whether the election results will have a significant effect on the base oils and lubricants segments remains to be seen, but the start of the monsoon season appeared to have had a more immediate impact on trading activity. Most buyers and suppliers have built inventories ahead of the arrival of heavy rains, which cause flooding, and transportation issues in many parts of India. Demand from the lubricants segment often slows down as well.

While several import cargoes have arrived over the last few weeks and a few more were on their way to India, interest in fresh shipments has ebbed as prices from certain sources such as the U.S. have increased, and availability has decreased due to higher domestic demand in that country. Many buyers in India preferred to secure material from domestic producers, who have recently increased production rates. Local refiners were also able to offer competitive pricing as they are able to import discounted Russian crude to run their refineries.

Group I import prices were under downward pressure due to muted buying interest and lower bid and offer levels. Import indications on a CFR basis have fallen by $5/ton week on week, with the exception perhaps of bright stock, which remained snug, supporting steady pricing.

Group II availability was deemed plentiful, with import cargoes expected to arrive over the next few weeks. Domestic material continued to be sought to avoid price risks as well as the logistical issues associated with imports. Import indications on a CFR basis have fallen by $5/ton week on week. Indian Oil was heard to be planning a turnaround at one of its Group II units as of mid-June, but this could not be confirmed with the producer directly.

Buying appetite for Group III supplies was subdued, and suppliers did not have a strong incentive to offer material into India as buying ideas have dropped.

In terms of imports, a 2,000-ton to 4,000-ton cargo was being considered for shipment from Ulsan, South Korea, to Mumbai at the end of June. A 10,000-ton to 13,000-ton lot was quoted for shipment from Daesan or Pyongtaek, South Korea, to West Coast India in late June/early July. A 1,000-ton to 5,000-ton lot was under discussion for shipment from Daesan or Pyongtaek to West Coast India in the second half of June. A 3,800-ton cargo made up of four base oil grades was expected to be shipped from Malacca or Port Klang, Malaysia, to Mumbai and Jawaharlal Nehru Port Authority in the second half of June as well.

Other South Korean shipments included a 2,000-ton to 3,000-ton parcel expected to be shipped to Thailand in early June. A 3,800-ton cargo was mentioned for possible shipment from Yeosu to Manila and Batangas, Philippines, in the second half of June. Between 4,000 tons and 5,500 tons of base oils were on the table for shipment from Daesan to Singapore and Port Klang in late June.

Base oil spot prices in Asia were steady-to-slightly lower, with indications for some grades slipping on weakening bid and offer levels. 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-to-softer. The Group I solvent neutral 150 grade was assessed lower by $10/t at $890/t-$930/t, but the SN500 was steady at $1,050/t-$1,090/t. Bright stock was hovering at around $1,300/t-$1,330/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were holding at $1,000/t-$1,030/t, and the 500N was heard at $1,110/t-$1,150/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 edged down by $10/t to $770/t-$810/t, but the SN500 was unchanged at $930/t-$950/t. Bright stock prices were holding at $1,110/t-$1,150/t, FOB Asia.

The Group II 150N was steady at $870/t-$910/t FOB Asia, and the 500N was assessed at $970/t-$1,010/t FOB Asia.

In the Group III segment, 4 centiStoke, 6 cSt and 8 cSt prices were stable. The 4 cSt grade was assessed at $1,100-$1,140/t, and the 6 cSt was hovering at $1,110/t-$1,150/t. The 8 cSt cut was holding at $990-$1,030/t. 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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