Spot base oil prices were steady to slightly lower in Asia, but the downward adjustments were less precipitous than at the beginning of August. While there was concern about oversupply and producers were doing their utmost to place their extra barrels, buying interest in distant destinations allowed suppliers to conclude several export transactions and lower inventories at home. Furthermore, refiners have started to dial back production to reduce the product overhang leading to a more balanced supply and demand scenario.
Participants noted that a number of Northeast Asian cargoes had been offered to receivers in the Americas and the Middle East. For example, about 40,000 metric tons of base oils were being discussed for shipment from South Korea to the United States Gulf in early September. A 10,000-metric ton cargo was also expected to be shipped from Mailiao, Taiwan, to Hamriyah, United Arab Emirates, in early October, while a 4,500-metric ton prompt lot was discussed to cover Pyongtaek, South Korea, to Hamriyah.
The need to move product to other regions was triggered by lackluster demand in the key markets China and India and slowing demand in Southeast Asia. Chinese buyers were reluctant to secure imports because prices were not considered competitive compared to domestic values, and lubricant requirements have also softened, leading blenders to be more cautious in terms of the volumes they were willing to purchase. Nevertheless, suppliers continued to target China, with a number of parcels heard concluded from Singapore and South Korea. Among other deals, approximately 3,000 metric tons were on the table for shipment from Onsan, South Korea, to Huizhou and Taichung in mid-September.
Prolonged coronavirus-related restrictions and lockdowns, an ongoing drought and less robust economic conditions than expected were impacting the lubricants segment in China. This summer, the country was hit by the most severe heatwave in six decades, exacerbating a drought that has impacted food and factory production, power supplies and transport in vast areas of the nation, the South China Morning Post reported. Conditions affected more than 900 million people in at least 17 provinces, from southwestern Sichuan to coastal Jiangsu and Zhejiang provinces in the east. China’s August factory activity also shrunk as orders weakened, Reuters noted in an online post. This was likely to affect demand for the API Group I base stocks, which are used in industrial, marine and railway applications.
In India, demand was deemed more vibrant than expected, considering that many segments of the country were being affected by the monsoons and severe flooding. The flooding was also devastating in neighboring Pakistan and Bangladesh. Indian buyers were intent on securing product at lower prices and resisted sellers’ offer levels. Some suppliers acquiesced to reduced pricing in order to attract buyers. A burst of activity was attributed to buyers starting to rebuild stocks ahead of the religious festival of Diwali or Deepawali – the “festival of lights” – in late October.
With buying appetite for Southeast Asian base oil cargoes being more subdued than earlier in the year, there was ample availability of Group I base oils reported. However, a planned turnaround at a Thai plant this month, together with the permanent shutdown of a Japanese Group I plant in October were expected to lead to tightening conditions in the region.
In Southeast Asia, a 1,000-metric ton cargo was expected to be shipped from Rayong, Thailand, to Haiphong, Vietnam, in late September. A 2,000-metric ton cargo was also being discussed for shipment from Thailand to East Coast India this month. A 4,000 metric ton lot was also on the table for shipment from Mailiao, Taiwan, or Daesan, South Korea, to Chittagong, Bangladesh, in Sep. A 2,000-metric ton cargo was also being discussed for shipment from Thailand to East Coast India in Sep. A 4,000-metric ton cargo made up of three or four grades was mentioned from Malacca, Malaysia, to Antwerp, Belgium.
Lower crude oil and feedstock values over the last few days also lifted some of the pressure on base oil prices. With margins remaining fairly advantageous, producers were reluctant to trim production rates, but several refiners were heard to be cutting run rates to better manage inventories, not only of base stocks, but of other refined products as well. This was the case in South Korea, where a couple of producers were heard to have trimmed production rates.
Crude futures slipped during the week, pressured by concerns that the global economy would slow further given renewed COVID-19 restrictions in China and a potential dent on oil consumption, inflation, and the ongoing Russian war on Ukraine, which was expected to affect energy supply within the European Union in the winter.
On Sept. 1, Brent November futures were trading at $94.45 per barrel on the London-based ICE Futures Europe exchange, from $101.33/bbl for October futures on Aug. 25.
Dubai front month crude oil (Platts) financial futures for October settled at $91.32 per barrel on the CME on Aug. 31, compared to $98.39 for September futures on Aug. 24.
Spot base oil prices were steady to softer on ample supply and lackluster demand, although oversupply conditions appeared to have been slightly assuaged for the time being. The 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 largely steady. Spot prices for the Group I solvent neutral 150 grade were heard at $1,000/t-$1,030/t, and the SN500 at $1,190/t-$1,230/t. Bright stock was holding at $1,260/t-$1,300/t, all ex-tank Singapore.
Prices for the Group II 150 neutral fell were also unchanged from last week at $1,120/t-$1,160/t, while the 500N was assessed at $1,170/t-$1,210/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was holding at $850/t-$890/t, but the SN500 fell by $40/t to $990/t-$1,030/t. Bright stock prices fell by $20/t to $1,010/t-1,060/t, FOB Asia.
The Group II 150N was steady at $940/t-$980/t FOB Asia, and the 500N and 600N cuts were within a $1,000/t-$1,050/t, FOB Asia range.
In the Group III segment, prices were slightly down from last week. The 4 centiStoke was assessed lower by $10/t at $1,510-$1,550/t, and the 6 cSt was also down by $10/t at $1,490/t-$1,530/t. The 8 cSt grade was down by $20/t at $1,210-$1,250/t, 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.
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