The base oils market appeared to be going through a transitional period, with buyers assessing future product needs and waiting for more definitive signs of where prices might be headed. Suppliers were mostly standing firm by their price ideas as crude oil prices have strengthened and there were expectations of increased base stock buying interest in the next few weeks. An autumn holiday in Japan and various festivities in other countries this week also limited trading activity. Some of the current prices were supported by snug availability, but other values were exposed to downward pressure due to growing supplies and lukewarm consumption levels.
As has been the case for most of the year, the API Group I grades remained in high demand, while production capacity in the region has not increased and has actually declined due to recent permanent Group I plant closures – including two ENEOS plants in Japan over the last three years – or given ongoing reduced operating rates at some facilities. A Japanese Group I plant remains offline because of a fire in July, while a second facility has been scheduled for a two-month turnaround starting in late September.
There were also expectations that at least one Group I plant in China would be shuttered before the end of the year as well. As a result, spot prices for Group I grades have generally been faring better in terms of maintaining a constant course than Group II cuts, which have lengthened on comparatively higher production capacity in the region.
The one grade that has been often maligned over the years but appeared to have attained the status of a coveted jewel is Group I bright stock, with prices moving up again this week as availability remained scarce against robust demand from the industrial, marine, railway and heavy-duty automotive segments, particularly in China. China is structurally short on heavy base oil grades and bright stock is no exception, with a domestic supplier heard to be offering very competitive pricing against imported volumes, which are limited in any case.
To meet the ongoing demand for a base stock that can offer similar characteristics to bright stock, ExxonMobil will be launching a Group II extra-heavy grade that the company plans to produce at its Singapore plant, starting next year. The plant’s added capacity of Group II light, heavy and extra-heavy base oils will be 1 million metric tons per year, and a large part of these volumes were expected to be exported. While the extra-heavy grade was likely to meet the requirements of many regional consumers, there was concern that the new capacity might lead to oversupply of Group II cuts in the region.
Group II base oils have seen downward price pressure in China over the last few weeks as regional supplies have grown along with domestic availability, particularly those of the light-viscosity cuts, while the heavier grades appeared to be holding steady.
Several Chinese Group II plants that had either shut down temporarily or had been running at reduced rates due to market economics earlier in the year were heard to have been restarted, and this has led to competitive domestic prices as suppliers sought to protect or gain market share. A Chinese producer was also understood to be offering Group I and Group II light grades for export.
Group II spot volumes from Taiwanese producer Formosa Petrochemical moving to China have diminished given the reinstatement of import duties on several Taiwanese refined products a couple of months ago, but cargoes moving under contract continued. The Taiwanese supplier has also been shipping regular cargoes to Southeast Asia, India, Pakistan and the Middle East. It was heard that a 3,600-metric-ton parcel was expected to be lifted in Mailiao for Karachi, Pakistan, in the first half of October.
Suppliers in China had hoped for improved demand ahead of the upcoming National Day holidays – also known as Golden Week – on October 1-7, when many people travel to their hometowns and fuel and lubricant consumption typically increases, but a significant uptick has not materialized yet. Businesses shut down and factories reduce or halt production during the holidays, and this meant that activity will be reduced. This, together with economic uncertainties as the Chinese economy is not growing as fast as expected may be dampening demand for most petrochemicals.
Within the Group III segment, supply of most grades was ample and demand has slowed in many countries, making it more difficult for suppliers to keep prices from falling. Group III values have edged down over the last several weeks in the region and were anticipated to remain exposed to downward pressure. Increased import volumes in China were also exerting pressure on prices, and local producers have consistently tried to offer competitive levels so as to gain and retain market share.
In India, buyers were still unsure about when to start placing fresh orders following a few months of subdued activity during the rainy season, although demand tends to pick up ahead of religious holidays such as Diwali in October. Most blenders had built inventories ahead of the monsoons and preferred to use up inventories before venturing out into the market, while many were also waiting to see more signs of an uptick in lubricant demand. The recent decline in crude oil and feedstock gasoil values has reversed over the last few days and higher values might start to exert upward pressure on base stock prices.
Given tight availability of bright stock, CFR India import prices edged up by $5 per ton from a week ago, but prices for the light-viscosity Group I grades fell by $10/t. Group II cuts also underwent downward adjustments of $5-15/t on lengthening supplies, particularly of the extra light grade. Likewise, imported Group III cuts saw decreases of $5/t from the previous week.
Buyers in India did not feel under pressure to rush back into the market, with ample domestic supplies expected to meet at least some of the current demand. Additionally, offers for imported volumes were anticipated to multiply during the last quarter of the year, since export cargoes in the U.S. were likely to be offered at competitive prices as suppliers try to liquidate surplus volumes stockpiled ahead and during the hurricane season. With the most active part of the hurricane season coming to an end in September, U.S. producers have already lowered their domestic posted prices and were expected to offer up more volumes into the export market.
Similarly, additional product was likely to become available in South Korea as most producers were running plants at top rates and some will have completed turnarounds. For the time being, however, S-Oil has limited its spot availability as it is conducting a turnaround at its plant in Onsan, but the producer was expected to be able to meet contractual obligations. The unit was anticipated to be restarted at the end of October.
A number of South Korean cargoes were being discussed for shipment to India this week. A 5,000-ton lot was mentioned for lifting in Daesan to Chennai for September dates. Between 22,000 tons and 33,000 tons were quoted for shipment from Yeosu to Mumbai on October 10-20. Another 20,000 tons were being considered for shipment from Yeosu to Mumbai and Kandla on the same dates.
Prices
While some base oil grades have lost ground because of lower feedstock prices since August amid oversupply conditions – including the light-viscosity grades and Group III cuts – others were holding on to current price levels as producers were reluctant to adjust prices down on more limited availability and climbing crude oil values.
Crude oil futures have shown fluctuations over the last few days, swayed by expectations of an interest rate cut in the U.S., fears of a spreading conflict in the Middle East after explosions of electronic devices in Lebanon, and concerns about sluggish oil demand from China, the world’s top oil importer. At the same time, India’s August crude imports surged by 6.4% compared to the same month last year, highlighting growing demand as the economy continues to recover, Indian newspaper The Economic Times reported.
Before the U.S. Federal Reserve announced a half-percent rate cut last week, oil prices had found some support following output disruptions in Libya and hurricane-related crude outages in the Gulf of Mexico, but production has since been restored. Traders were watching another weather system developing in the Caribbean, which was expected to move into the Gulf of Mexico in the coming days, possibly heading for Louisiana as a hurricane. Crude futures inched up in early trading hours in Asia on Monday, consolidating the previous week’s gains of 4-5%, and hovered near three-week highs.
On September 23, Brent November 2024 crude futures were trading at $74.64 per barrel on the London-based ICE Futures Europe exchange, from $71.95/bbl on September 16.
Dubai front month crude oil (Platts) financial futures for October 2024 settled at $73.19/bbl on the CME on September 20, compared to $70.72/bbl on September 13.
Base oil spot prices in Asia were mixed, with some values seeing downward adjustments on lengthening supplies and subdued buying interest, others showing no change, and a few edging up 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 were in short supply while others were long. Group I solvent neutral 150 grade was unchanged at $860-900/t, but SN500 was assessed higher by $10/t at $1,060-1,100/t. Bright stock prices strengthened by $20/t to $1,280-1,320/t, all ex-tank Singapore, on limited availability.
Prices for Group II 150 neutral slipped by $10/t to $900-940/t, but 500N was holding at $1,050-1,090/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed unchanged at $690-730/t, and the SN500 was also holding at $910-940/t. Bright stock prices jumped by $20/t to $1,090-1,130/t, FOB Asia on tight supplies.
Group II 150N edged down by $10/t to $720-760/t FOB Asia, but 500N was notionally adjusted up by $10/t to $920-960/t FOB Asia.
In the Group III segment, 4 cSt, 6 cSt and 8 cSt prices were adjusted down on global oversupply conditions. The 4 cSt grade was down by $10/t at $1,090-1,130/t, and the 6 cSt was also assessed down by $10/t at $1,100-1,140/t. The 8 cSt cut was lower by $10/t as well at $980-1,020/t.
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.