Most Indian consumers typically secure enough base stocks ahead of the rainy season, as transportation and logistics suffer severe disruptions, and demand therefore tapers off between June and September.

Import volumes have also fallen compared to the first few months of the year, partly because of a lack of demand, but also because availability at origin has tightened. India imported significant amounts of United States base oils in the first quarter, for example, but steady domestic demand and inventory-building efforts during hurricane season along the U.S. Gulf Coast had led to a tightening of supplies and reduced availability of export cargoes. South Korean imports had also seen brisk uptake in the previous months, but volumes have fallen since June.

Houthi attacks on commercial vessels in the Red Sea had pushed freight rates ever higher, thwarting import business, but rates were said to be coming down. Despite possibly more favorable conditions, buying interest for imports remained lackluster in India, likely due to difficulties in dealing with newly implemented rules issued by the Bureau of Indian Standards that regulate, among others, specifications of imported base oils.

Coal and crude oil/petroleum products are considered the backbone of the Indian economy and standardization in these sectors plays an important role in the country’s efforts to expand its economic growth.

According to reports, there has been some confusion leading to the delay at customs of a number of base oil cargoes, which presumably discouraged consumers from seeking additional imports. Prices of imports have therefore weakened by $5 per ton to $15/t on a CFR India basis for most grades from the previous week.

Despite difficulties related to imports, there were a few discussions for September, with 40,000 metric tons of base oils and chemicals on the table for possible lifting in Yeosu, South Korea, to West Coast India (WCI) in the first half of September. About 2,500 tons were also mentioned for shipment from Rayong, Thailand, to WCI or Middle East Gulf in early August.

China

In China, base oil demand has also weakened, although there were expectations of an uptick ahead of the National Day holidays in early October. A general economic slowdown, coupled with lubricant-industry specific uncertainties driven by reduced demand for traditional lubricants used in internal combustion engines and construction have dampened activity in these segments and have led to reduced base oil demand.

Given recent additions to base oil capacity China, many buyers have been able to meet requirements by purchasing locally produced base oils, but the heavy grades were still in deficit, prompting participants to secure imports. Group I bright stock is typically a very sought-after grade, but sources of this product in Asia were limited to Southeast Asia and Japan. In contrast to recent months, bright stock prices have started to weaken in China as local producers have lowered offers, and recent fluctuations of the Chinese yuan against the dollar made imports more affordable.

Japan

With Japanese Group I production having been reduced significantly following the permanent closure of a number of plants over the last few years and export volumes falling, Southeast Asia appeared to have gained popularity as a source of Group I supplies, although exports from Group I-producing countries are also limited at times. Thai and Indonesian producers prioritize domestic demand and sometimes have little additional product for export. As a result, bright stock prices have often been sheltered from the downward pressure that other grades have been exposed to. It is a difficult grade to replace in formulations as well, leaving consumers with few options but to accept suppliers’ prices.

This week, it was heard that there were a couple of Japanese and Indonesian Group I cargoes on offer, which pointed to the fact that Japanese domestic demand must have weakened. Japan’s consumption of refined oil products has been steadily falling over the last few years amid a push by the government towards more sustainable products, and base stock exports have decreased too. A Japanese refinery was heard to remain off-line following a fire in July, and no update on its expected restart date was available. A 2,000-metric ton cargo was under discussion for shipment from Yokkaichi, Japan, to Singapore between Aug. 19 and Aug. 30.

Taiwan

Aside from Group I base oils, China typically imported large quantities of Group II grades, but the volumes have slipped since several domestic plants have come online in recent years. Additionally, the sole Taiwanese Group II producer, Formosa Petrochemical, used to ship a large part of its production to China. The recent re-imposition of a tariff on refined products from Taiwan and a lingering lack of interest for imports have led to a sharp reduction in Taiwanese shipments to China. Taiwanese cargoes have been seen moving to India, Pakistan, the Middle East and other destinations instead. South Korean suppliers also regularly ship base oils to China. This week, there has been discussion of an 11,000-metric ton cargo for shipment from Daesan to Changzhou on August 3-5, while a second 4,200-ton lot was also mentioned to cover the same route on Aug. 1-6.

A domestic Group III producer was heard to be making great strides towards capturing market share in China and has been able to secure term contracts as it has been producing on-spec product. An importer was understood to have lowered its prices in order to compete with the domestic barrels.

Group II availability was considered plentiful, and buyers did not feel pressure to acquire large volumes to cover for potential shortages. Instead, they preferred to secure smaller quantities to avoid price risks, should values slip in the coming weeks. The heavy grades appeared to be tighter than their lighter counterparts and suppliers were therefore less inclined to offer discounts.

South Korea

While Group II supplies in Asia were rising due to slowing demand in some countries and high run rates at refineries, Group III grades continued to be described as balanced-to-tight, given steady demand, an ongoing turnaround at one plant and an upcoming shutdown at a second facility. The SK-Pertamina plant in Dumai, Indonesia, was expected to have started a turnaround this month. The maintenance program was anticipated to affect regional short-term Group III inventories, but the producer was heard to have built inventories to cover term obligations. Next month, S-Oil has also scheduled a one-month turnaround at its Onsan, South Korea, plant, which might affect availability of all groups of base oils, but the producer was expected to build inventories ahead of the outage as well.

While South Korean Group II and Group III base oils had seen a heavy schedule of shipments to destinations in Asia in recent months, it seems some of the buying interest for these cargoes has moved to the Middle East and Europe. A 3,000-metric ton prompt parcel was mentioned for shipment from Daesan to Gebze, Turkey. A 10,000-ton lot was expected to be shipped from South Korea to Amsterdam-Rotterdam-Antwerp in the second half of August. About 10,000 tons to 12,000 tons were discussed for shipment from Daesan to Hamriyah, United Arab Emirates, in the second half of August, as well.

Prices

Base oil spot prices in Asia were stable-to-soft, with some prices seeing downward adjustments on lengthening supplies and subdued buying interest. 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 stable-to-soft. The Group I solvent neutral 150 grade edged down by $10/t to $880-920/t, but the SN500 was holding at $1,040-1,080/t. Bright stock was assessed at $1,260-1,300/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were assessed down by $10/t at $940-980/t, and the 500N was holding at $1,060-1,100/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 moved down by $10/t to $730-770/t, and the SN500 was also assessed down by $10/t at $910-930/t. Bright stock prices were assessed unchanged at $1,060-1,100, FOB Asia.

The Group II 150N was assessed lower by $10/t at $770-810/t FOB Asia, and the 500N was steady at $910-950/t FOB Asia.

In the Group III segment, 4 cSt, 6 cSt and 8 cSt prices were steady from a week ago. The 4 cSt grade was holding at $1,140-1,180/t, and the 6 cSt was assessed at $1,150-1,190/t. The 8 cSt cut was unchanged at $1,030-1,070/t.

Aside from keeping an eye on regional movements of base oils, market participants were monitoring crude oil futures closely as prices continued to show volatility. Last week, equity markets were spooked by signs that the U.S. economy might be slowing, sending stocks to multi-month lows and spawning fears about future global crude oil demand. Futures bounced back after four consecutive weeks of decline on Monday as recession fears eased and a flare-up in the Iran-Israel tensions fed concerns of an escalating conflict, with Brent rising to levels near $80 per barrel.

On August 12, Brent October 2024 crude futures were trading at $80.23/bbl on the London-based ICE Futures Europe exchange, from $76.40/bbl on Aug. 5.

Dubai front month crude oil (Platts) financial futures for September 2024 settled at $77.59 per barrel on the CME on August 9, compared to $75.71/bbl for August futures on August 2.

Gabriela Wheeler can be reached directly atgabriela@LubesnGreases.com.

Lubes’n’Greases shall not be liable for commercial decisions based on the contents of this report.