Base oil prices in Asia were swayed by divergent currents, with some values moving up on tighter supply, and others falling due to sluggish demand and plentiful availability. Base oil requirements have not increased substantially over the last few weeks, and in fact, may have dropped on account of holidays in markets such as China and Taiwan, and unclear pricing trends in India. However, some base oils have become less available due to planned and unplanned production outages, and this was supporting their current value.
In the API Group I segment, plant shutdowns in Southeast Asia – where most Group I facilities are located – have led to a tightening of supplies and higher prices. Bright stock was particularly enjoying heightened attention as it remained in snug supply and prices have edged up. There was talk about European cargoes filling some of the supply gaps left by the absence of regional offers, but freight rates may be high given that vessels may have to circumvent the Suez Canal due to Houthi attacks on commercial ships and oil tankers in the Red Sea, which translated into higher costs and a longer voyage time.
A turnaround at a Thai base oil plant that started in early January was expected to curb availability of Group I base oils, but the producer was heard to be ready to restart its plant shortly. A second producer, which had experienced production issues since last December but seemed to be running its plant, was anticipated to be able to offer limited spot cargoes this month as it prioritized domestic demand. Exports from Indonesia have also been more scarce recently given that a majority of production was absorbed in the domestic market.
Japanese spot exports of Group I base oils have also been limited because a key supplier was focusing on meeting domestic demand. Production capacity in Japan has been significantly reduced after the permanent closure of two Eneos Group I plants since 2022, although the products from these units were mostly used for domestic production of lubricants and not exported.
Meanwhile, availability of Group II grades seemed slightly more copious, and blenders opted for securing these cuts in lieu of Group I grades whenever their formulations made it possible. In this segment, there have been production outages that limited availability of some grades as well, with the high-viscosity grades becoming less available than their lighter counterparts.
The Hyundai-Shell Base Oils Group II plant in South Korea, which typically ships significant volumes of base oils to China, was running at reduced rates due to issues with feedstock supply from the associated refinery.
Formosa Petrochemical’s Group II plant in Mailiao, Taiwan, suffered an unexpected production outage caused by a fire that broke out at the affiliated refinery on Jan. 24, shutting down operations for several days. The plant was expected to be restarted after the Lunar New Year holidays, celebrated Feb. 8-14 in Taiwan. Formosa typically ships large amounts to China and also offers spot cargoes, but the producer was expected to limit spot shipments while it restarted the plant and rebuilt inventories. Even so, there was talk about a 4,000-metric ton cargo having been lined up for shipment from Taiwan to the Middle East this month. A 2,300-ton lot was also discussed for shipment from Yeosu, South Korea, to Taichung, Taiwan, in February.
In China, severe winter weather has left millions of travelers stranded during the busiest travel period of the year, the Lunar New Year holidays, also known as the Spring Festival. While the Lunar New Year officially starts on February 10, millions of city dwellers were already on their way to their hometowns to celebrate the holidays days earlier this week, only to find that highways had been closed, and flights and trains cancelled due to heavy snowfall and freezing conditions.
Base oil demand had picked up slightly ahead of the holidays as lubricant consumption typically increases given that drivers prepare their vehicles for extended trips and public transportation is stretched to the limit. Consumption of domestic base stocks had shown an uptick but buying interest for imports had not been as robust as anticipated because local suppliers had offered more attractive pricing. One exception may have been the heavy-viscosity grades, and bright stock in particular, as production of these grades is not adequate to cover all requirements in China. Manufacturing plants also shut down temporarily during the holidays and this may have impacted demand as well.
Several cargoes were discussed for shipment to China, including a 1,000-ton lot from Onsan, South Korea, to Dongguan in mid-February. A 3,000-ton parcel was likely to be shipped from Singapore to Tianjin the first half of February. A second cargo of about 1,900 tons was expected to be shipped from Singapore to Zhenjiang in February.
In India, some buyers have delayed orders in order to gain a clearer insight into what the country’s economic policies might be. India’s interim budget for 2024, which was announced last week, shows a changing economy, one which is moving away from agriculture to manufacturing, but there also appeared to be an increase in demand for the “Food for Work” program, particularly in the countryside. While India’s economy is expected to grow at a robust 7.3 percent in the year ended March 2024, there is concern that millions of people are moving to the cities while those in rural areas see fewer opportunities and are less likely to benefit from the country’s growth.
Base oil demand had increased in India in January when many February cargoes were negotiated, but now that those parcels were on their way, there is less of an incentive to discuss March shipments. There was still some buying interest for Group I and Group II grades, which have tightened on account of regional turnarounds and unexpected outages. Offer levels have consequently moved up and buyers who had an immediate need to secure cargoes have upped their bids. Prices on a CFR basis have increased between $10 and $20 per metric ton. In contrast, Group III grades were deemed plentiful, and prices remained exposed to downward pressure, with downward adjustments of about $10/t becoming commonplace for the 4 centiStoke and 6 cSt grades.
A few import cargoes have been under discussion for shipment to India, although consumers still favored domestic product whenever it was available because of more competitive pricing. A 2,000-ton parcel was mentioned for prompt shipment from the Middle East to West Coast India. About 10,000 tons were on the table for prompt to first half Feb. shipment from South Korea to India. A 7,000-ton to 8,000-ton cargo was mentioned for lifting in the U.S. Gulf to West Coast India in mid Feb. A second lot of about 5,000 tons to 7,000 tons was also quoted for shipment from Houston, U.S., to Mumbai the first week of February. An 8,500-ton parcel was discussed for lifting in Yanbu and Jeddah, Saudi Arabia, to Mumbai and Singapore in early February.
Upstream, crude oil futures strengthened for a third day on fears about an escalating conflict in the Middle East, as Israel rejected a ceasefire offer by Hamas and Israeli Prime Minister Netanyahu vowed to press on with his country’s war in Gaza. “The war between Israel and Hamas threatens to draw the U.S. into a direct confrontation with Iran,” CNBC.com reported. Additionally, oil prices were also boosted by forecasts that U.S. oil production would grow at a slower pace than expected this year.
On Thursday, Feb. 8, Brent April 2024 crude futures were trading at $79.54 per barrel on the London-based ICE Futures Europe exchange, from $81.71/bbl on Feb. 1.
Dubai front month crude oil (Platts) financial futures for March 2024 settled at $78.56 per barrel on the CME on Feb. 7, from $79.97/bbl for Feb. futures on Jan. 31.
Base oil prices in Asia were mixed compared to the previous week. Some prices weakened on ample supplies and soft demand, some were unchanged, and others edged up on tightening conditions. 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. The Group I solvent neutral 150 grade was unchanged at $870/t-$910/t, and the SN500 was assessed at $990/t-$1,020/t. Bright stock was holding at $1,200/t-$1,240/t, all ex-tank Singapore.
Prices for the Group II 150 neutral were holding at $950/t-$980/t, and the 500N was stable at $980/t-$1,020/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was heard at $770/t-$810/t, while the SN500 was assessed at $890/t-$920/t. Bright stock prices inched up by $10/t to $1,060/t-1,100/t, FOB Asia on tight supply.
The Group II 150N edged up by $10/t to $780/t-$820/t FOB Asia, and the 500N was assessed higher by $20/t at $820/t-$850/t FOB Asia.
In the Group III segment, 4 centiStoke, 6 cSt and 8 cSt prices were steady to softer. The 4 cSt fell by $20/t to $1,110-$1,140/t, and the 6 cSt declined by $10/t to $1,120/t-$1,160/t. The 8 cSt grade was unchanged at $930-$970/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.