Base oil prices in Asia were generally steady, with a more defined direction expected to emerge in the next few days as participants evaluate whether to stock up now, or wait until after the Lunar New Year holidays, which start on Feb. 1. Some years, consumers tend to purchase large quantities of base oils before the festivities as prices often increase following the interstice, but there are years when buyers prefer to wait.
Given the uncertainties brought about by a new wave of coronavirus infections – driven by the Omicron variant – and ongoing supply chain disruptions, there were signs that participants were leaning towards delaying purchases as much as possible.
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Plentiful availability of most grades and normal run rates at most refineries also assuaged concerns about potential shortages, which was a factor that had played a major role during the same time last year, when a buying frenzy had driven base stock prices sky-high.
This year, however, base oil plants have been running at optimum rates for several months and there were no obvious shortages of base oils for the time being. Some grades may be tighter than others due to seasonal patterns. The lighter viscosity grades are typically in more demand during the winter months in the Northern Hemisphere because they are preferred for most applications to maintain performance in low temperatures. These grades were tighter than their heavier counterparts.
However, demand for high viscosity grades was expected to mount since end-users start to pad inventories for the busier spring production season, when requirements for the heavy cuts pick up. There were already indications that some of the Southeast Asian suppliers were sold out of January availability of API Group I bright stock and solvent neutral 500. With an increase in buying interest for these grades came a stabilizing effect on pricing. Bright stock and the SN500, together with the Group II 500 neutral had lost quite a bit of territory in previous months, but spot prices were now being pulled up by renewed buying interest.
Chinese buyers in particular were expected to return to the market in full force and seek heavy-vis grades, but appeared to be waiting for after the Lunar New Year to do so. The reason for this was not necessarily a concern about prices, because it seemed that values have bottomed out, but about the uncertainties surrounding the pandemic and related transportation and supply chain disruptions.
The Chinese government was intent on upholding its zero-COVID policy, particularly ahead of the 2022 Winter Olympics in Beijing starting on Feb. 4, and has implemented strict restrictions in locations where Omicron infections have been detected. As of Wednesday, more than 20 million people remained confined to their homes in at least five cities around China, the New York Times reported. One especially worrying coronavirus flare-up was in Tianjin, a port city just 70 miles from Beijing. Breaching China’s COVID rules could get anyone up to four years in prison, according to Fortune online, which ensured that the population upheld the rules.
Domestic base oil producers have been able to meet a large portion of China’s base oil needs, but imports were still necessary. At the same time, there has been an increase in Chinese exports this year, with cargoes moving mainly to Southeast Asia. Some players refrained from finalizing business in January on expectations of challenging conditions related to shipping during the Lunar New Year, aggravated by the ongoing pandemic.
Formosa Petrochemical regularly supplies Group II to Chinese buyers under contract and often ships spot cargoes as well. Other sources include South Korean, Japanese, Southeast Asian and Middle Eastern suppliers, and these shipments were anticipated to continue in coming months.
A Middle East Group III producer was reported to have scheduled an extended turnaround, starting in March. While most of the producer’s output is used downstream for the manufacture of its branded lubricants, the shutdown may have an impact on general Group III availability as the producer was expected to purchase a number of cargoes from other suppliers to cover for some of the shortfall at its plant.
In India, ample availability of domestic product and imports continued to pressure prices down. U.S. suppliers with extra Group II volumes have targeted the Indian market over the last three months, and several cargoes were anticipated to arrive in January. A 10,000-metric ton parcel was heard in discussions this week to be shipped from the U.S. Gulf to West Coast India at the end of January to early February.
Regular shipments from Southeast Asia, Taiwan and South Korea were also anticipated to cover many requirements in India. There were reports of increased volumes of Group III cargoes moving from the Middle East to India in coming weeks as well. There was a 4,000-metric ton cargo on the table to move from Malacca, Malaysia, to India in mid-February. A 2,000 metric ton cargo was being considered from Taiwan to Hamriyah, United Arab Emirates, or West Coast India for late Jan. lifting. A 3,000-metric ton parcel was expected to ship from Ulsan, South Korea, to Mumbai in the first half of Jan. Another 3,000 metric tons were also discussed to cover Pyeongtaek, South Korea, to Chennai at the end of Jan.
As a result of the comfortable supply situation, Indian consumers expected to be able to achieve lower pricing, but suppliers have dug in their heels as the costs of production and logistics have increased. Expectations of increased demand in preparation for the busier lubricant production season offered further support to current prices in India, with most spot indications heard to be stable to slightly firmer. However, depending on the progress of the new coronavirus wave in India, demand may not be as healthy as expected.
Spot base oil prices in Asia were thought to be at a turning point, with the likelihood that steeper crude oil and feedstock prices and revived demand might place upward pressure on values in the weeks ahead. Spot ranges were mixed week-on-week, with some prices going up, some remaining unchanged and a few softening. The spreads reflect bids and offers, deals and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were assessed as stable to soft. The Group I solvent neutral 150 grade was firm at $840/t-$870/t, and the SN500 at $1,020/t-$1,060/t. Bright stock was hovering at $1,180/t-$1,220/t, all ex-tank Singapore.
Prices for the Group II 150 neutral were stable at $870/t-$910/t, but the 500N was assessed down by $30/t at $1,090/t-$1,130/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $730/t-$770/t, but the SN500 was heard to have moved up by $30/t to $910/t-$950/t. Bright stock was down by $20/t at $950/t-990/t, FOB Asia.
The Group II 150N was steady at $770/t-$810/t FOB Asia, and the 500N and 600N cuts were hovering at $850/t-$890/t, FOB Asia.
In the Group III segment, prices were unchanged from a week ago. The 4 centiStoke was holding at $1,440-$1,480/t, and the 6 cSt was assessed at $1,420/t-$1,460/t. The 8 cSt grade was steady at $1,180-1,220/t, FOB Asia, all for fully approved product.
Upstream, crude oil futures hit two-month highs on Wednesday on easing concerns about the impact of Omicron on oil consumption, a weaker U.S. dollar and a significant drop in U.S. inventories, the world’s top consumer.
On Jan. 13, Brent March futures were trading at $84.84 per barrel on the London-based ICE Futures Europe exchange, from $81.44/bbl on Jan. 6.
Dubai front month crude oil (Platts) financial futures for February settled at $81.71/bbl on the CME on Jan. 12, from $78.07/bbl on Jan. 5 (CME note: Settlement prices on instruments without open interest or volume are provided for web users only and are not based on market activity.)
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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