Weekly Asia Base Oil Price Report

Seeing the steep drops that crude oil and feedstock gasoil prices experienced in recent trading sessions, buyers speculated that base oil prices would be coming down as well and chose to hold off on purchases for some time. This was possible for some consumers in countries such as India because buyers had built inventories ahead of the monsoon season and appeared to be well-supplied for the time being.

Most suppliers were holding on to current pricing and resisted the pressure for lower numbers, except light grades of API Group II, which were more plentiful. Base oil and lubricant consumption typically increase in October after the end of the heavy rains and ahead of many religious holidays, so suppliers were counting on stronger fundamentals to support prices in the coming weeks.

A turnaround at Indian Oil Corp.’s Group I and Group II units in Haldia, which was expected to start in late August and end later in September, had no significant impact on availability given sluggish domestic demand.

India’s imports declined since June but were anticipated to strengthen during the last quarter of the year, as opportunities to import United States cargoes at competitive prices were likely to increase during a period when suppliers try to find homes for their surplus volumes ahead of the end of the year, and following an inventory built during the hurricane season. Nonetheless, imports from South Korea were expected to surpass those from the U.S. With the exception of bright stock, which remained an elusive cut as supplies were very limited, most CFR India base oil import prices edged down by $5-10 per metric ton from a week ago, with Middle East offers having been lowered to compete with domestic values.

There may be additional availability in South Korea in the last quarter as scheduled plant turnarounds will have been completed. South Korean producer S-Oil was expected to start maintenance at its Onsan plant this week, which might affect spot availability of Group I and Group II base oils in the short term, but the producer was expected to build inventories ahead of the outage to meet most contractual obligations. The unit was anticipated to be restarted at the end of October.

Several shipments have already been discussed for shipment from Onsan to China, India, Southeast Asia and the Americas over the next couple of months. Indeed, a 1,800-ton lot was expected to be loaded in Onsan for Zhangjiagang and Jingjiang in late September. A 1,300-metric ton cargo was discussed for lifting in Onsan to Tianjin, China, in late October. A 1,000-ton parcel was mentioned for shipment from Onsan to Ho Chi Minh, Vietnam, in early October. A 3,000-ton lot was discussed for shipment from Onsan to Houston, U.S., in mid-October. A 9,000-ton parcel was also on the table for shipment from Onsan to New Orleans in mid-October.

At least 22,000-30,000 tons were also lined up for shipment from Yeosu in South Korea to Mumbai in mid-October. There was also a 5,000-ton cargo quoted for shipment from Daesan to Chennai this month. A 1,300-ton parcel was expected to be shipped from Yeosu to Yokohama in Japan in mid-October.

A 4,000-ton parcel was on the table to cover Singapore-Houston, U.S., in September. About 13,000-16,000 tons were being considered for shipment from the Straits or South Korea to the Caribbean in late September.

Many areas were still recovering from the onslaught of Typhoon Yagi last week, which unleashed heavy rains and flooding in China, Vietnam, Laos, Myanmar, Cambodia, Thailand and the Philippines, causing extensive damage and many casualties. In China, the rain and flooding brought many industrial and transportation activities in Hainan and Guangdong provinces to a halt. It could not be confirmed whether the storm had triggered a shutdown at Hainan Handi Sunshine Petrochemical’s Group II and Group III base oil plant on the island of Hainan, but this was likely as most industrial, transportation, shipping and business activities had been suspended in the region by September 4 in preparation for the storm.

In other parts of China, several base oil plants that had been shut down or running at reduced rates due to market economics were heard to have been restarted or increased production rates as domestic demand has improved given more advantageous local prices compared to imports. Domestic suppliers were doing their utmost to attract business and have lowered prices, while importers have also adjusted prices down to secure orders, particularly for the light viscosity grades, but the arbitrage seemed to be closed in most cases.

China was preparing for the National Day holidays, known as Golden Week, on October 1-7, when factories reduce or halt production and many people travel. A pickup in lubricant demand from the transportation and automotive segments was expected ahead of the holiday, but buying activity remained disappointing, likely because of lingering economic uncertainties.

China’s property market is still in disarray because of oversupply­ and low demand. According to economists, weak consumer demand and reduced government spending are dragging on growth in the world’s number two economy. Slow income growth and high unemployment rates pushed Chinese consumer confidence to near historic lows, and this impacted discretionary consumer spending. Retail sales in China expanded by 2.1% year-on-year in August, against expectations of 2.5% growth that month and below July’s figure of 2.7%, the Hindu Business Line reported. China’s industrial production increased by 4.5% in August against 5.1% in July and below expectations of a 4.8% growth last month. The latest industrial production data marked the fourth straight month of a decline.

Group I heavy grades were still in fairly tight supply throughout the region and China was no exception. Most Group I available to buyers in Asia come from Southeast Asia, and Thai suppliers have been particularly active sellers over the last three months, with shipments moving not only to China, but also to Singapore and Vietnam. An Indonesian producer has also offered cargoes via tenders for October loading. Bright stock continued to be in the spotlight, with demand remaining robust and not enough volumes available to cover all requirements. As a result, prices have jumped this week, making them unworkable for the Chinese market as domestic prices were hovering at much lower levels.

Group II production was steady in China over the last couple of months, and there were no shortages noted, despite the drop in imports from Taiwan after the Chinese government reinstated import duties on a number of Taiwanese refined products, including base oils. A Chinese supplier has even offered some Group II volumes for export earlier this month.

Taiwanese producer Formosa Petrochemical was understood to be running its base oil unit at slightly reduced rates given softer domestic demand and fewer cargoes moving to China, but it has continued shipping products to India, Pakistan, the Middle East and Southeast Asia. A 3,600-ton cargo was mentioned for possible shipment from Mailiao to Karachi, Pakistan, in the first half of October.

In the Group III segment, Chinese Group III suppliers have been doing their utmost to gain market share and offer attractive prices to compete with growing Middle East imports. They have also made incursions into the export market, with a Chinese Group III cargo offered for October shipment.

Prices

Crude oil futures have registered sharp drops compared to August, pressured by fears of a drop in demand from China—the world’s largest oil importer – and of an increase in OPEC+ oil output. Prices edged up last week on expectations that Hurricane Francine, which made landfall on the U.S. Gulf Coast last week, would stall approximately 33% of total oil output in the Gulf of Mexico. Crude prices had also found support last Thursday after OPEC+ agreed to pause its scheduled crude production hike of 180,000 barrels per day in October and November due to signs of fragile global energy demand, Nasdaq reported.

Futures were fairly steady in early trading on Monday, September 16, given predictions that the U.S. Federal Reserve would decide to cut interest rates at a meeting later this week. Brent November 2024 crude futures were trading at $71.95 per barrel on the London-based ICE Futures Europe exchange, from $71.75/bbl on September 9.

Dubai front month crude oil (Platts) financial futures for October 2024 settled at $70.72 per barrel on the CME on September 13, compared to $70.06/bbl on September 6.

Base oil spot prices in Asia were stable to slightly softer, with some values seeing downward adjustments on lengthening supplies and subdued buying interest, and others showing no change because of a tighter supply and demand balance. 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 mixed as some cuts were in short supply while others were long. Group I solvent neutral 150 was unchanged at $860-900/t and SN500 was steady at $1,050-1,090/t. Bright stock prices edged up by $10/t to $1,260-1,300/t, all ex-tank Singapore on limited availability.

Prices for the Group II 150 neutral slipped by $10/t to $910-950/t, but the 500N was holding at $1,050-1,090/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was assessed down by $10/t at $690-730/t, but SN500 was steady at $910-940/t. Bright stock prices jumped by $20/t to $1,070-1,110/t, FOB Asia on tight supplies.

Group II 150N edged down by $10/t to $730-770/t FOB Asia, but 500N was unchanged at $910-950/t FOB Asia.

In the Group III segment, 4 cSt, 6 cSt and 8 cSt prices were adjusted down on regional oversupply. The 4 cSt grade was down by $10/t at $1,100-1,140/t, and the 6 cSt was also assessed down by $10/t at $1,110-1,150/t. The 8 cSt cut was lower by $10/t as well at $990-1,030/t.

Gabriela Wheeler can be reached directly atgabriela@LubesnGreases.com.

Lubes’n’Greases shall not be liable for commercial decisions based on the contents of this report.