Base oil markets in Asia appeared to be in a holding pattern, as many buyers preferred to delay fresh purchases until a clearer price direction emerged. Several suppliers also held off on adjusting offers, despite downward pressure from lackluster demand, growing supplies and falling crude oil and feedstock prices. Severe weather was also a factor disrupting daily activities in several countries of the region.
While some base oil prices finally succumbed to the downward pressure and underwent slight adjustments, as sellers were eager to secure orders, a few values were able to avoid adjustments on account of dwindling availability and an uptick in immediate orders. Prices for the heavier grades within the API Group I and Group II segments remained fairly stable as they were deemed generally tight. Conversely, the light grades were showing some length and demand remained sluggish, which prompted some suppliers to lower their prices. All of the API Group III grades were under pressure due to plentiful global supplies and lukewarm demand.
Group I offers from Southeast Asia remained limited, although there were reports of some October-loading cargoes becoming available from Thailand at unchanged levels from the previous week. However, these offers elicited subdued buying interest due to recent crude oil price fluctuations and buyers’ hopes that all base oil prices would undergo downward revisions on the back of lower feedstock values.
Suppliers had hoped that September would usher in increased activity in the region, but economic uncertainties and weather disruptions in China and India were still affecting market dynamics.
In China, Typhoon Yagi made landfall in the southern provinces on Friday, September 6, after it swept over parts of Hong Kong and the Philippines, bringing strong winds and heavy rains and forcing many aspects of life in the region to a halt. Ahead of the landfall, nearly 420,000 residents in Hainan, as well as more than half a million people in Guangdong were evacuated, Japanese newspaper Asahi Shimbun reported. It could not be confirmed whether the storm had triggered a shutdown at Hainan Handi Sunshine Petrochemical’s Group II and Group III base oil plant on the island of Hainan, but this was likely as most industrial, transportation, shipping and business activities had been suspended in the region by Septmeber 4 in preparation for the storm.
On Saturday, Yagi made landfall in Vietnam, packing powerful winds and torrential rain that killed at least four people and injured more than 70 people, and forced tens of thousands to evacuate, according to state-run media. Factories in an industrial zone in Vietnam’s north also closed on Saturday afternoon after Yagi caused power outages. Manufacturing lines in that industrial zone include Pegatron, a major assembler for Apple, and Bridgestone, the world’s largest producer of tires and rubber, according to The New York Times. The tire and rubber segment is a large consumer of heavy naphthenic base oils.
Aside from having to deal with natural disasters, Chinese market participants were facing economic uncertainties. Lubricant demand was described as disappointing despite expectations of increased consumption from the automotive and transportation segments ahead of the National Day holidays – also known as Golden Week – on October 1-7, when millions of people take to the road. Industrial activity was expected to be subdued during the holidays as factories reduce operations or shut down temporarily. Financial problems plaguing the Chinese real estate, construction and infrastructure segments were also seen as culprits for the downcast demand for fuel and petrochemicals. Concerns about the strength of the economy persist, with Chinese manufacturing and non-manufacturing PMIs hovering near 2024 lows.
Chinese buyers were anticipated to be able to meet most requirements by securing domestic base oils, which were offered at attractive prices compared to imports. Moreover, several Group I and Group II plants in China have resumed production, with some grades starting to lengthen. This has triggered competitive movements by producers trying to protect or increase market share, with prices edging down for various grades. At the same time, importers have also lowered pricing in order to compete with local supplies.
Group I heavy grades were still in short supply and this situation may be exacerbated by a Group I producer’s extended shutdown. Group I prices were therefore expected to maintain their steady course. In the Group III segment, a local producer with a relatively recent startup of Group III plant operations has been able to secure contracts and compete with imports from the Middle East, while other Group III suppliers were also focusing on gaining market share.
There were some pockets of tight supplies in the Group II segment in China, as imports from Taiwan have fallen following the government’s reimposition of import duties on a number of Taiwanese refined products.
Taiwanese producer Formosa Petrochemical was heard to be running its base oil unit at slightly reduced rates, given lower domestic demand and fewer cargoes moving to China. But the producer was heard to be shipping products to India, Pakistan, the Middle East and Southeast Asia. About 2,500 tons were anticipated for shipment from Mailiao, Taiwan, to Karachi, Pakistan, in late September.
Meanwhile, India was still struggling from the effects of the monsoons, with dozens of fatalities and houses collapsing in southern India over the weekend due to heavy rain and floods. Base oil demand was expected to revive once the monsoon season was over in late September, with lubricant consumption anticipated to pick up and blenders expected to have used up current inventories, which they had built ahead of the rainy season. Signs of more robust demand for base oils have yet to emerge, but suppliers remained optimistic that opportunities lay around the corner.
A one-month turnaround at Indian Oil Corp.’s Group I and Group II units in Haldia, which started in late August, was expected to have limited impact on availability as demand has not been extremely robust over the last few weeks.
Group I price indications on a CFR India basis have slipped by $5 per metric ton, week on week, given lower feedstock prices and muted buying interest. The light and mid-viscosity Group II grades saw decreases of $10-15/t, while the Group III values also edged down by $5-10/t on ample supply against lackluster consumption from the automotive segment. Group II base oils continue to be offered at competitive prices compared to Group I grades, which encourages some lubricant manufacturers to use more Group II material instead of Group I cuts whenever possible.
At the same time, prospects of increased imports were partly dampening buying interest as Indian participants expected more availability from the United States and South Korea in the coming weeks. U.S. producers have padded supplies to cover for possible production outages during hurricane season, but were expected to start clearing inventories soon. They often target the export market, with India typically benefitting from several shipments at competitive prices during the fourth quarter. It remained to be seen whether this situation would be replicated this year. Some attention was focused on a hurricane which was developing off the U.S. Gulf Coast, where a number of large base oil plants are located. Severe weather production disruptions could suddenly tighten supply in the U.S. and curtail export opportunities.
The completion of scheduled turnarounds in South Korea in the last quarter also meant that additional cargoes would likely become available for export later in the year. South Korean producer S-Oil was expected to start a one-month turnaround at its Onsan plant this month, which might affect spot availability of Group I, Group II and Group III base oils in the short term, but the producer was expected to build inventories ahead of the outage to meet most contractual obligations. Several shipments have already been discussed for shipment from Onsan to China, India, Southeast Asia and the Americas over the next couple of months. Indeed, a 1,800-ton lot was expected to be loaded in Onsan to Zhangjiagang and Jingjiang in late Sep. a 1,300-metric ton cargo was discussed for lifting in Onsan to Tianjin, China, in late October. A 1,000-ton parcel was mentioned for shipment from Onsan to Ho Chi Minh, Vietnam, in early October.
At least 22,000 tons to 30,000 tons have also been lined up for shipment from Yeosu, South Korea, to Mumbai, India, in mid October. A 1,300-ton parcel was expected to be shipped from Yeosu to Yokohama, Japan, in mid October. In terms of other origins, a 4,000-ton parcel was on the table to cover Singapore-Houston in September.
Prices
Crude oil futures remained on a downward trend and plummeted by 9-10% last week, showing the biggest weekly decline in 11 months, on expectations that Libya might resolve a dispute that led to supply disruptions, and that OPEC+ could potentially increase output in October. Data showing a manufacturing slowdown in China and the U.S. also fueled oil demand concerns. Saudi Arabia also announced that it would lower the price of its premium oil grade for its primary Asian market for October due to growing fears about falling demand.
However, on Monday, crude futures inched up on concerns about a hurricane forming off the U.S. Gulf Coast, where about 60% of refining capacity is located. The storm could make landfall by Wednesday or Thursday and force refineries to shut down production.
On September 9, Brent November 2024 crude futures were trading at $71.75 per barrel on the London-based ICE Futures Europe exchange, from $76.46/bbl on September 2.
Dubai front month crude oil (Platts) financial futures for October 2024 settled at $70.06 per barrel on the CME on September 6, compared to $75.07/bbl for September futures on August 30.
Base oil spot prices in Asia were stable to slightly softer, with some values seeing downward adjustments on lengthening supplies and subdued buying interest, and others showing no change because of a tighter supply and demand balance. 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 mixed as some cuts have tightened, and others were plentiful. The Group I solvent neutral 150 grade was lower by $10/t at $860-900/t, but the SN500 was steady at $1,050-1,090/t. Bright stock was hovering at $1,250-1,290/t, all ex-tank Singapore.
Prices for the Group II 150 neutral edged down by $10/t to $920-960/t, but the 500N was holding at $1,050-1,090/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed down by $10/t at $700-740/t, but the SN500 was steady at $910-940/t. Bright stock prices were holding at $1,050-1,090/t, FOB Asia.
The Group II 150N edged down by $10/t to $740-780/t FOB Asia, but the 500N was unchanged at $910-950/t FOB Asia.
In the Group III segment, 4 cSt, 6 cSt and 8 cSt prices were adjusted down on growing oversupply conditions. The 4 cSt grade was down by $10/t to $1,110-1,150/t, and the 6 cSt was also assessed down by $10/t to $1,120-1,160/t. The 8 cSt cut was down by $10/t as well to $1,000-1,040/t.
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.