Trading in some base oil segments was brisk, but some corners of the market have started to slow down, perhaps because consumers have become increasingly aware that supply has lengthened, and this could start to exert downward pressure on prices. Buyers therefore preferred to secure only those volumes needed to run operations and not stock extra product that may lose value in the coming weeks.
In some countries such as India, consumers have started to build inventories ahead of the monsoon season, when the heavy rains cause transportation and logistical issues, and activity in China was anticipated to tick up following the Labor Day holidays.
The API Group I and Group II segments showed the tightest conditions, as demand has been healthy and recent production outages have resulted in reduced availability of several grades. These fundamentals supported the prevailing prices or nudged them up compared to the previous week.
Spot availability of Group I grades remained snug because there is a limited number of plants in Southeast Asia that produce these cuts and domestic demand in some of the producing countries continued to absorb a large portion of the output, leaving less product for spot transactions. Imports into some Southeast Asian countries such as Thailand have also been on the rise to supplement local production, with shipments coming in from Singapore, South Korea and Qatar.
Bright stock continued to be in the spotlight because this cut is difficult to replace and many formulations going into applications within the industrial and transportation segments still require it. Spot prices have therefore moved up since the beginning of the year and have stayed at elevated levels.
Similarly, Group II supplies were very tight because of an uptick in demand and recent turnarounds or partial shutdowns at Group II facilities in the region. The light grades have been particularly sought-after as blenders use them in a growing number of applications within the automotive segment.
There were discussions involving shipments from Singapore to several destinations in Southeast Asia. A 4,750-ton cargo made up of four grades was mentioned for possible shipment to Koh Sichang and Bangkok, Thailand, in early May, along with a 3,900-ton parcel expected to be shipped to Port Klang, Malaysia, in mid-May. A 2,000-ton cargo of heavy neutral extract was also mentioned for shipment from Singapore to Sri Racha, Thailand, in the second half of May. Additionally, a 2,000-ton cargo was discussed for shipment from Sri Racha to Nantong, China, Jakarta, Indonesia, or Mumbai, India, in the first half of June. A 2,000-ton lot was being considered for prompt shipment from the United Arab Emirates to Singapore as well.
A couple of transactions involving South Korean shipments to Southeast Asia surfaced as well, including a 1,200-ton cargo likely to be shipped from Ulsan, South Korea, to Koh Sichang, Thailand, in early June, and a 2,000-ton lot also from Ulsan to Tanjung Priok, Indonesia, in the first half of June.
In key base oil consumer countries such as China, Group I bright stock is still in high demand from industrial, marine, railway and heavy-duty automotive applications. The heavy-viscosity base oils are typically snug due to the country’s structural deficit of these grades. The shutdown at a large local Group I plant for a maintenance program that started in mid-April exacerbated the situation. However, buying appetite for imports has subsided compared to previous years because of increased domestic production of most base oil grades, with the exception of bright stock, with no spot offers emerging within China’s domestic market.
Group II heavy-viscosity grades were deemed tight in China, but uncertainties in various downstream segments were dampening demand, particularly for imports as they were deemed too pricey. A domestic Group II plant was heard to have been taken off-line for maintenance from May until June. A second plant appeared to remain off-line since March. The sole Taiwanese Group II producer, Formosa Petrochemical, generally ships substantial volumes to China, but the volumes moving there in recent months have fallen. The producer was focusing more on meeting domestic demand, while a partial shutdown at its Group II plant in Mailiao caused by upstream maintenance at the affiliated refinery also restricted spot availability in March and April. It was heard that a 7,000-ton cargo was being considered for shipment from Mailiao to Hamriyah, United Arab Emirates, between June 20 and June 30. At the same time, a 1,000-ton lot was mentioned for possible shipment from Ulsan to Kaohsiung, Taiwan, in early June.
In the Group III segment, a producer was expected to have started a turnaround in late April and the plant was expected to be off-line until June. A second local producer has improved the quality of its Group III base oils and ample availability from the supplier was expected over the next few months. A Middle East refiner was hoping to expand its market share in China and was planning to offer increased volumes into that country, along with competitive pricing. However, the turnaround at the SK-Pertamina plant in Dumai, Indonesia, this month, could put a dent in regional short-term Group III inventories. Later in the year, S-Oil has scheduled a turnaround at its Onsan plant in September and October, and it will build inventories ahead of the outage.
In India, buyers continued to resist steeper base oil Group I and Group II offers as downstream prospects were uncertain; lubricant consumption could potentially decline with the arrival of the heavy rains during monsoon season starting in June. At the same time, consumers pad inventories ahead of the monsoon season because transportation and deliveries can suffer disruptions if floods occur. It was heard that a transaction for the Group II heavy-viscosity cut had been concluded at a higher price than the previous week because of thinning supplies, but there was general resistance to higher offers. Buyers were also counting on improved production rates at local refineries, and on the arrival of imports from Northeast Asia and the Middle East in the coming weeks.
An 18,000-ton parcel was expected to be shipped from Daesan and Pyongtaek, South Korea, to West Coast India in the first half of May. Interest for U.S. cargoes has subsided somewhat as price expectations have firmed due to a tightening Group II supply and demand balance at that origin.
Group III buying interest was still healthy in India, but price expectations have edged down given plentiful regional supplies, particularly as a turnaround at a South Korean Group III plant has been completed and additional spot cargoes were expected to become available. SK Enmove was heard to have completed a turnaround at its Group III facilities, which had started in mid-March, but the company also plans to start a maintenance program at the SK-Pertamina plant in Dumai, Indonesia, this month, which could tighten regional short-term Group III availability. Later in the year, S-Oil has scheduled a turnaround at its Onsan plant in September and October but was expected to build inventories ahead of the outage.
Market participants kept a watchful eye on crude oil and feedstock prices, as values have come down from levels registered a month ago. The fluctuations amplified buyers’ nervousness in terms of base oil pricing, as lower crude prices could start to exert downward pressure on values. Brent futures reached levels near $92 per barrel in April and have slipped to the low $80s/bbl over the last two weeks on hopes of a ceasefire agreement between Hamas and Israel, which would assuage fears that the conflict could spread to other countries in the Middle East and cause oil supply disruptions, and on expectations of reduced global oil demand.
On Wednesday, oil prices edged higher following data showing that U.S. crude stockpiles had fallen last week as refiners gradually ramped up output ahead of the summer driving season, while a stronger dollar capped gains.
On Thursday, May 9, Brent July 2024 crude futures were trading at $84.04 per barrel on the London-based ICE Futures Europe exchange, from $84.10/bbl on May 2.
Dubai front month crude oil (Platts) financial futures for June 2024 settled at $83.19 per barrel on the CME on May 8, from $82.67/bbl on May 1.
Base oil spot prices in Asia were steady-to-firm again this week, with prices for some grades edging up on tighter supplies and increased bid and offer levels. 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 generally steady-to-firm. The Group I solvent neutral 150 grade was unchanged at $900/t-$940/t, and the SN500 at $1,030/t-$1,070/t. Bright stock was holding within a $1,290/t-$1,320/t range, all ex-tank Singapore.
Prices for the Group II 150 neutral were assessed up by $10/t at $990/t-$1,020/t and the 500N was steady at $1,090/t-$1,130/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was holding at $770/t-$810/t, and the SN500 was also unchanged at $910/t-$930/t. Bright stock prices were firm at $1,100/t-$1,140/t, FOB Asia on tight supply.
The Group II 150N edged up by $10/t from last week at $860/t-$900/t FOB Asia, and the 500N range was also up by $10/t at $960/t-$1,000/t FOB Asia.
In the Group III segment, 4 centiStoke, 6 cSt and 8 cSt prices were stable. The 4 cSt grade was assessed at $1,090-$1,120/t, and the 6 cSt was heard at $1,080/t-$1,120/t. The 8 cSt cut was assessed at $990-$1,030/t. All indications are 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.