Arduous negotiations are ongoing between buyers and sellers regarding May shipments of base oils. While most producers were heard to be seeking price increases, buyers are presenting strong resistance because of difficulties passing along cost increases.
Base oil sellers are hoping to achieve increases of U.S. $20 to $30 per metric ton to offset firm production costs and to rebuild eroded margins. Although crude oil and feedstock prices have fluctuated during the last few weeks, producers have seen their margins steadily deteriorate since the last quarter of 2013. Given that the spring season is traditionally the strongest time of the year for base oil demand, producers feel that a tighter demand-supply balance would support higher prices.
Buyers, on the other hand, contend that base oil supply is plentiful and that demand from downstream segments has not been as strong as anticipated for this time of the year.
Producers efforts may be also undermined by reports that a large Singapore refiner intends to lower prices of its high-viscosity base oils. According to market sources, the producer will reduce the price of its API Group II 500 neutral cut sold under contract to Asian buyers by $20/ton at the end of April.
Participants said this movement was confusing the market, because the supplier has recently increased prices for most of its Group I and II products. The supplier raised values by U.S. $20/ton on April 19, with the exception of its 500N, sources said, although there was no direct confirmation from the producer.
Some participants speculated that the refiner may be long on 500N and was therefore hoping to promote sales by lowering the price, particularly as high-viscosity grades have generally been more abundant in Asia than their low-vis counterparts. Most sources agreed that low-vis cuts remained on the tight side, with prices exposed to upward pressure.
However, a Northeast Asian supplier said that interest for high-viscosity stocks had picked up, and that several Southeast Asia buyers were looking for spot cargoes. The supplier was unable to offer any spot volumes as it was sold-out, having finalized all of its May term and spot shipments. Its term cargoes were agreed under formula and the price was not revealed.
The producer also reported concluding two spot cargoes, including 1,000 tons of 150N at $1,040/ton FOB Asia and a second 1,000-ton cargo of 500N at $1,065/ton FOB Asia for shipment to South China. Given that the supplier has completed its May sales, it will start to focus on June shipments soon, but negotiations are not expected to start until early May.
Meanwhile, there appears to be keen buying appetite emerging from China, particularly for Group I material, with domestic supplies described as snug. This could be partly attributed to recent and ongoing production outages in the region, with Dalian Petrochemical having taken its 450,000 t/y Group I plant in Dalian offline for a turnaround the first week of April. PetroChinas Fushun 260,000 t/y Group I base oil plant has also been undergoing an extended turnaround since late January, but was expected to be restarted this month.
In Thailand, Integrated Refinery & Petrochemicals Complex (IRPC) has restarted its 320,000 t/y Group I plant following a one-month turnaround that began in mid-March. The company was unable to offer spot tonnage during March and April. In Japan, JX Nippon Oil is preparing to shut down its Group I base oils plants in Mizushima in May. One of the units, which has capacity of 250,000 t/y, was expected to undergo an extended turnaround of about two months, while the smaller unit, which produces 170,000 t/y, will be shut down for thirty days, market sources said.
In the Group II segment, producer Panjin Northern Asphalt has decided to postpone the start date of a turnaround at its 400,000 t/y plant in Liaoning from April to May, sources said. Sinopec Jingmen was expected to restart its 100,000 t/y Group II base oils plant in Hubei in late April, but an update about the status of the plant was not forthcoming. At the same time, it was heard that Sinopec will be postponing the restart of its 300,000 t/y Group II base oils plant in Shanghai to May from an original date in first-half April.
Few changes in current prices were observed during the week, although discussions and deals involving the 500 neutrals were taking place at lower levels than in the previous week.
On an ex-tank Singapore basis, Group I prices were assessed at $1,060-$1,100/t for Group I solvent neutral 150. SN500 oils were hovering at $1,080-$1,130/t, and bright stock was heard at $1,190-$1,250/t.
On an FOB Asia basis, Group I SN150 was unchanged at $950-$980/t FOB Asia week on week. SN500 was steady at $1,030-$1,070/t, and bright stock at $1,150-$1,210/t, all FOB Asia.
Group II 150N was reported at $1,010-$1,050/t FOB Asia, while 500N was assessed at $1,050-$1,080/t FOB Asia, reflecting a $20/ton drop at the high end of the range. In the Group III segment, 4 centiStoke and 6 cSt oils were cited in the range of $1,030-$1,080/t FOB Asia, and the 8 cSt grade was heard at $1,020-$1,050/t FOB Asia.
Activity was somewhat thin on the shipping lanes, with a combined a cargo of 6,000 tons of 150N, plus 3,000 tons of 600N quoted for Yeosu, South Korea, to Beihai, China, for May 5-10 lifting. A second 5,000-ton cargo of 600N was being discussed for Yeosu or Ulsan, South Korea, to Antwerp, Belgium, for May 20-30 shipment. A 1,500-ton lot was on the table for Onsan to Tianjin, China, during May 14-17. Finally, an 8,400-ton parcel of three grades was expected to cover Yosu to Port Khalid/Sharjah, United Arab Emirates, in second half May.
Upstream, June ICE Brent Singapore futures were trading at $110.07 per barrel in afternoon trading April 28, compared with numbers at $109.13/bbl on April 21.