The tide has turned in the Asian base oils market, with spot prices showing some softening as demand has slowed down and supply has lengthened, following several weeks of tight conditions and persistent price increases. Lower crude oil and feedstock values were also affecting buying and selling ideas and have prompted consumers to delay purchases in hopes of lower prices.
Crude oil values slipped from their peaks in early March on gloomy demand forecasts, sociopolitical turmoil in several countries and recession fears, and this has reduced the price pressure for refiners, who had been streaming more feedstocks into fuel production. Weaker fuel prices were thought to be encouraging a ramp-up in base oil output, as margins have improved vis-a-vis competing fuel prices.
Crude oil futures were mixed on Thursday, with gasoline demand in the United States picking up this week and crude inventories dropping more than anticipated and exerting upward pressure on values, but fears about a global recession dampened the upward trend.
On July 28, Brent September futures were trading at $107.84 per barrel on the London-based ICE Futures Europe exchange, from $104.32/bbl on July 21.
Dubai front month crude oil (Platts) financial futures for August settled at $99.26 per barrel on the CME on July 20, compared to $99.24 on July 20.
The improved base stock supply levels and softer prices in Asia were also expected to open arbitrage opportunities to Europe, although availability of many grades has started to increase in that region as well and vessel space and transportation issues continued to hamper transactions. Asian suppliers were finding it increasingly difficult to locate outlets for their products.
One factor that suppliers kept an eye on was the ongoing hurricane season along the U.S. Gulf Coast, which could bring severe weather and supply disruptions in coming weeks. In years past, strong hurricanes caused production outages at base oil plants located along the Gulf Coast, and suppliers had been able to fill supply gaps in the Americas with shipments out of Asia. So far, no major storms have been reported, but hurricanes most often occur in the August-September time frame. U.S. producers and consumers have padded inventories to cover potential supply disruptions and spot volumes ex-U.S. Gulf were therefore very limited.
India usually receives significant quantities of base oils from the U.S., but volumes have decreased due to the strong fundamentals within that country. South Korean and Taiwanese shipments have been more conspicuous in India in recent months as output levels in those nations have improved, following planned and unplanned shutdowns. However, the monsoon season in India has also dampened demand due to flooding and logistical difficulties, with buyers opting for using up existing inventories. A domestic base oil producer was also heard to have restarted production, allowing for more material to go into the market.
Additionally, a slowdown in Chinese demand has resulted in more base oil barrels becoming available for spot business. This was partly attributed to fresh COVID-19-related restrictions and lockdowns in several major cities, which dampened both industrial output, as well as the population’s mobility. Domestic production was deemed sufficient to cover a large swath of local demand, reducing the need for imports, with the exception perhaps of some heavy-viscosity grades, as the country is structurally short on these cuts. A number of Chinese light-viscosity cargoes have been offered to regional buyers as well, with some cargoes targeting India.
At the same time, uncertainties in terms of pricing and demand strength in coming weeks have prompted buyers to adopt a more cautious attitude and secure smaller cargoes, with shipments of flexibags coming into focus.
Given increased availability, buyers’ bids have edged down, and some sellers have started to acquiesce to the lower figures, particularly for some of the more available grades such as API Group I bright stock. Offers of Group I cargoes into India have moved down between $20 per metric ton and $60/ton week on week.
In Southeast Asia, Group I spot availabilities have become more abundant following the restart of a Thai production plant and more subdued regional demand. Bright stock prices have succumbed to downward pressure as suppliers try to place cargoes.
Group II supplies were also more plentiful, but prices were slightly more stable, although prices for a couple of cuts have edged down on sellers’ efforts to entice buyers. The sole Taiwanese producer, South Korean and Southeast Asian suppliers were still actively seeking opportunities both regionally and in the Americas, although freight rates and slowing demand in other areas has also made concluding business more challenging. A 2,500-3,000 metric ton parcel was in discussions to be shipped promptly or in early August from Rayong, Thailand, to Rio de Janeiro, Brazil. A similar cargo was also being quoted for Rayong to Mumbai, India, and/or Hamriyah, United Arab Emirates, for prompt lifting. About 12,000 metric tons were being considered for shipment from Ulsan or Onsan to Mumbai in the second half of August. A 3,000-4,000 metric ton lot was also mentioned to be shipped on a prompt basis from Mailiao, Taiwan, to Hamriyah.
Taiwanese Group II cargoes are typically shipped to cover both contract commitments and spot demand in China, but given subdued demand in that country, more parcels seemed to be offered into India and the Middle East in recent weeks.
Group III prices were generally stable, as supply and demand fundamentals appeared more balanced and sellers were not as eager to adjust prices down, although prices have softened in China due to competition with domestic supplies.
Spot base oil prices in Asia were stable to soft this week on increased supply levels and weaker demand. 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 mostly unchanged from the previous week. Spot prices for the Group I solvent neutral 150 grade were heard at $1,170/t-$1,200/t, and the SN500 at $1,360/t-$1,400/t. Bright stock was assessed down by $30/t at $1,440/t-$1,480/t, all ex-tank Singapore.
Prices for the Group II 150 neutral were heard at around $1,320/t-$1,360/t, while the 500N was lower by $10/t at $1,370/t-$1,410/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was down by $20/t at $1,070/t-$1,110/t, and the SN500 was also lower by $20/t at $1,230/t-$1,270/t. Bright stock prices fell by a heftier $40/t to $1,270/t-1,320/t, FOB Asia.
The Group II 150N was assessed down by $30/t at $1,240/t-$1,280/t FOB Asia, and the 500N and 600N cuts moved down by $30/t as well to $1,290/t-$1,340/t, FOB Asia.
In the Group III segment, prices were stable. The 4 centiStoke was steady at $1,650-$1,690/t, and the 6 cSt at $1,630/t-$1,670/t. The 8 cSt grade was holding at $1,360-1,400/t, FOB Asia, all 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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