There was growing optimism in the different base oil segments in Asia as activity has picked up and demand seemed revived. This was partly due to the easing of pandemic-related lockdowns in China, which is a significant base oil and lubricant consumer. The approach of the summer season also lent the market an air of renewed vitality. However, buyers showed some reluctance to accepting the higher offers that were bandied about.
The Chinese government has finally given the green light to the reopening of businesses and to allowing people to leave their homes after strict lockdowns in the populous Shanghai area. The lockdowns had been triggered by the rising number of coronavirus cases and a drive to comply with the zero-COVID policies imposed by Beijing.
As factories and businesses resumed activities and the population started to enjoy more mobility, there were expectations of an increase in fuel and lubricant consumption in China.
Furthermore, the approach of the summer season, which typically sees improved lubricant demand levels meant that base oil buyers would be returning to the trading scene over the next few weeks to replenish inventories. China is structurally short on the heavy grades and bright stock, and consumers were therefore expected to be on the lookout for cargoes outside of China. Southeast Asian supplies were likely to be the target of their bids. Thai suppliers have offered several API Group I cargoes in recent weeks and upcoming offers were expected to be watched by Chinese buyers. However, they were likely to face competition from Southeast Asian and Middle East buyers.
While there had been improved base stock availability in Asia earlier in the month as several plants had resumed production following turnarounds and reduced production rates, it seemed that the supply and demand situation was beginning to turn, and less supply was available for spot transactions.
Japanese suppliers sometimes offer surplus supplies of Group I base oils for spot export business, but they appeared to have little extra product available beyond those barrels earmarked for contractual obligations.
Taiwan regularly supplies large quantities of Group II base oils to China, but it was unclear whether the producer would have plentiful supplies to offer for spot business as it has suffered some production setbacks in recent weeks. This condition had forced the sole producer in Taiwan to cut back its spot volumes and focus on the domestic market and on term contracts. At the same time, the spread of the coronavirus in Taiwan has led to lukewarm demand for base oils and lubricants.
In India, demand has picked up as economic activity has improved, following significant swings caused by the pandemic. Base oil buyers were heard to be looking to secure June cargoes, but their price ideas often differed from those that the suppliers were entertaining. Producers were very aware of the high cost of crude oil and feedstocks and felt pressure to justify base oil output against fuel production. Motor fuels and jet kerosene prices have climbed on heightened mobility of the population, and refiners were mulling an increase in fuel output, which would limit feedstock supply for base oils.
South Korean producers appeared to be in possession of plentiful inventories and they have been active participants in the export arena in recent weeks, but it was not clear whether they have placed most of their surplus supplies and may not be able to offer as much product in the next couple of weeks. This week, several inquiries were being discussed in shipping circles which involved South Korean product moving to India, Southeast Asia and far-away destinations in the Americas. About 25,000 metric tons of base oils were being discussed for shipment from Ulsan to Houston, United States, the first week of June. A 1,650-metric ton cargo was expected to be lifted in Ulsan for Mumbai, India, and Jebel Ali, Dubai, United Arab Emirates, in mid-June. A 1,000-metric ton lot was on the table for shipment from Ulsan to Port Klang, Malaysia, in late June or early July. About 3,500 metric tons were discussed for lifting in Yeosu or Ulsan to Mesaieed, Qatar. A similar parcel was shipped from Yeosu to Mumbai in early May. A 10,000 to 20,000 metric ton lot was looking to be shipped from Daesan and/or Kunsan and/or Pyongtaek to West Coast India, and possibly Karachi, Pakistan, in mid-June. A 3,500-metric ton cargo made up of three grades was on the table for shipment from Onsan to Singapore around June 15-25.
Group I and Group II supplies were generally tight in Asia, but Group III availability has improved with South Korean and Middle Eastern producers ramping up production rates. Demand was deemed steady and may increase as automotive lubricant consumption was expected to flourish ahead of the summer months.
Spot base oil prices in Asia were assessed as stable to firm again this week, with high feedstock prices and tightening supply placing upward pressure on price ideas. The ranges portrayed below reflect bids and offers, as well as deals and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were slightly higher week on week on steep feedstock prices, with spot prices for the Group I solvent neutral 150 grade assessed higher by $10/t at $1,150/t-$1,180/t, and the SN500 up by $20/t at $1,340/t-$1,390/t. Bright stock also moved up by $10/t at $1,450/t-$1,490/t, all ex-tank Singapore.
Prices for the Group II 150 neutral edged up by $20/t to $1,280/t-$1,320/t, while the 500N was also higher by $10-20/t at $1,370/t-$1,410/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was up by $20/t at $1,060/t-$1,100/t, but the SN500 moved up by $30/t to $1,180/t-$1,220/t. Bright stock was higher by $20/t at $1,270/t-1,330/t, FOB Asia.
The Group II 150N moved up by $30/t to $1,220/t-$1,260/t FOB Asia, and the 500N and 600N cuts were higher by $20-30/t at $1,270/t-$1,320/t, FOB Asia given that these grades were tighter in the region.
In the Group III segment, prices remained largely steady week on week. The 4 centiStoke was assessed at $1,590-$1,630/t, and the 6 cSt was holding at $1,580/t-$1,620/t. The 8 cSt grade was unchanged at $1,310-1,340/t, FOB Asia, all for fully approved product.
Upstream, crude oil futures climbed on Thursday on the back of tightening supplies, with U.S. refineries processing crude at the highest rate since the pandemic began at around 93 percent. Self-sanctions on Russian imports from many European businesses continued to place upward pressure on prices.
On May 26, Brent July futures were trading at $114.69 per barrel on the London-based ICE Futures Europe exchange, from $106.70/bbl on May 19. A year ago, Brent was trading in the high $60s/bbl.
Dubai front month crude oil (Platts) financial futures for June settled at $106.92/bbl on the CME on May 25, from $102.47/bbl on May 18. (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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