The Asian base oil market is slowly coming back to life, following the Labor Day and Golden Week holidays celebrated across the region. Suppliers are anxious to confirm orders, and buyers are taking their time to place them.
Sellers had hoped that buyers would return to the market with a healthy appetite, but buyers have adopted a cautious attitude towards orders. Many prefer to limit their purchases, concerned that downstream demand will start to trail off earlier than usual.
Requirements typically stay strong through May, but there are signs that this might not be the case this year, lubricant manufacturers said. While requirements for finished products are steady, there has not been a substantial change from earlier in the year, and the spring season should normally mark a very sharp increase in orders, sources added.
Base oil suppliers have been trying to push through price increases, but consumers have resisted because of difficulty passing along the markups. While finished lube prices have moved up in other regions like the United States, chances of obtaining significant lube price increases in Asia are smaller, sources explained.
Additionally, buyers are holding on to hopes that base oil prices might weaken if demand does not improve, given that supply is plentiful and is expected to remain healthy for some time. Most Asian producers are running plants at full rates, and aside from a planned turnaround at JX Nippon Oils API Group I facility in Mizushima, Japan, in May, no major shutdowns are scheduled over the next several months.
Nevertheless, suppliers maintain that margins have been squeezed since late last year, and despite slight decreases in crude oil and feedstock prices, production costs remain very high.
Traders are battling other types of demons. Several complained that base oil producers are only willing to sell combined cargoes, meaning that the buyers can obtain a 150 neutral parcel, for example, if they agree to buy it in combination with a 500N lot.
This is likely because suppliers have more availability of the heavier-viscosity fluids at the moment and are tight on the light grades, sources explained. Demand for light grades, within both API Group I and II segments, has been stronger than for the heavier cuts since last December. Buyers and traders prefer not to run the risk of acquiring the combined cargoes only to be left with extra product in their tanks.
One of the problems for traders in China has been the need to improve cash flow, and it was heard that many had been forced to sell cargoes at a loss in order to avoid credit issues.
Base oil prices in China have remained fairly stable, although there have been isolated increases in some regions for light-vis oils as they are in shorter supply. Group I prices have also been edging up in northeast China on tight availability. However, a couple of local producers are planning to resume production or have already done so following turnarounds, and supply is expected to improve.
It was heard that Sinopec Jinan had restarted its 150,000-metric ton per year Group II plant in Jinan, after being off-line since January. The refiner was also expected to restart its 300,000-t/y Group II plant in Shanghai some time in May.
PetroChina Fushun was also expected to restart its 260,000-t/y Group I plant in Liaoning in mid-April, following an extended shutdown, but the status of the unit could not be confirmed.
Shandong Qisheng also planned to restart its 70,000-t/y Group I unit in Zibo in early May as well.
Meanwhile, another Group I plant, Dalian Petrochemicals, which can produce 450,000 t/y, was taken off-line on April 5 and was expected to undergo a one-month turnaround.
A Taiwanese producer also said that it would be offering base oils to China on a spot basis in May, aside from its regular shipments to term customers; the supplier had only moved cargoes under contract during the month of April.
Northeast Asian producers acknowledged that most May spot shipments were being finalized at similar prices to those seen in April, and buyers also mentioned that there had been few price fluctuations since last month. The price assessments for the week have undergone no changes from the previous week.
On an ex-tank Singapore basis, Group I prices were holding at $1,060-$1,100/t for solvent neutral 150. SN500 oils were reported at $1,080-$1,130/t, and bright stock at $1,190-$1,250/t.
On an FOB Asia basis, Group I SN150 was steady at $950-$980/t FOB Asia. SN500 was unchanged at $1,030-$1,070/t, and bright stock at $1,150-$1,210/t, all FOB Asia.
Group II 150N was heard at $1,010-$1,050/t FOB Asia, while 500N was stable at $1,050-$1,080/t FOB Asia.
In the Group III segment, 4 centiStoke and 6 cSt oils were assessed at $1,030-$1,080/t FOB Asia, and the 8 cSt grade was reported at $1,020-$1,050/t FOB Asia.
Activity on the shipping front has started to pick up the pace, with a 3,300-metric ton cargo of two to four base oil grades expected to be shipped from Yeosu, South Korea, to Merak, Indonesia, around May 20-30. An 8,400-ton lot of three grades was being discussed for Yeosu to Port Khalid, United Arab Emirates, for second-half May shipment. A 5,000-ton parcel of 600N was on the table for Yeosu or Ulsan, South Korea, to Antwerp, Belgium, for late May/early June lifting.
Upstream, June ICE Brent Singapore futures were trading at $108.34 per barrel in afternoon trading May 12, compared with numbers at $108.67/bbl on May 5.