Conditions in the Asian base oil market were described as largely stable, but producers are starting to worry about a potential demand slowdown in June.
While requirements have maintained a steady course from April into May, the first signs that demand might be cooling in June have started to emerge, as the typically busy spring season – which runs from March to May – is starting to wind down.
Blenders and lubricant manufacturers also said that buying appetite in downstream segments had been a bit disappointing during the past months, especially compared to previous years. This was likely tied to economic uncertainties and the trend among end users to have fewer oil changes, market sources said. Since lube demand has not picked up significantly and supply remains healthy, it has been difficult to implement price hikes for finished products, manufacturers added.
Negotiations for June base oil shipments are ongoing and participants expect to see few pricing changes going into June. However, producers worry that weaker demand could start to exert downward pressure on pricing during the month.
For the most part, term customers are booking the same quantities of base oils as in previous months, and suppliers are left with little spot availability. However, a couple of producers conceded that term buyers had reduced their June requirements slightly and expected this trend to last through August.
Suppliers have repeatedly tried to push base oil price increases through, given ongoing pressure from high crude oil and feedstock costs, but buyers have resisted the attempts because availability is ample. Sporadic increases of around U.S. $10 to $20 per metric ton were achieved for spot transactions during May, mostly on the high viscosity grades and bright stock.
A Northeast Asian buyer said that spot supply had actually improved in May and was expected to be adequate in June. Indeed, a Taiwanese API Group II producer was anticipated to have increased spot volumes to offer into China in June as compared to May levels.
There were also reports that a couple of Group I spot cargoes had made their way from Indonesia to China in May and more were likely to be shipped in June.
Trader sources also said that a Russian producer would resume spot shipments of Group I base oils to China this month, as the supplier has restarted its plant, following a turnaround in May.
A couple of base oil plants were also expected to restart operations in China in June. Sinopecs Gaoqiao unit, which has a capacity of 300,000 ton per year of Group II base oils, was anticipated to be brought back on stream in mid-June, following a turnaround that started in May.
Panjin Northern Asphalt was also expected to restart its 400,000-t/y Group II plant in Liaoning some time in June.
Buyers in Taiwan reported receiving offers from South Korean suppliers of Group II oils, but had not committed to any deals because availability from the local producer was plentiful and prices more competitive than imports at the moment.
Those consumers who have enough inventories to keep operations going are assuming a wait-and-see position, sources added, on hopes that prices would decline in coming weeks.
However, producers insist that margins continue to be squeezed as feedstock costs have not abated, and that there is no room for negotiating prices down.
Demand for Group III oils in China has been steady and prices remain flat, a seller said, and similar conditions apply to the rest of Asia, sources agreed.
In terms of pricing, values in Asia have shown no fluctuation week on week.
On an ex-tank Singapore basis, Group I prices were unchanged 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. SN500 was reported at $1,040-$1,070/t FOB and bright stock was assessed at $1,190-$1,220/t FOB.
Group II 150 neutral 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 unchanged at $1,030-$1,080/t FOB Asia, and the 8 cSt grade at $1,020-$1,050/t FOB Asia.
Only a handful of inquiries to move base oils within Asia emerged this week. A 2,000-metric ton cargo of 500N was being discussed for Yeosu, South Korea, to Nantong, China, for June 6-13 shipment. A second 2,000-ton lot of 600N was expected to be shipped from Yeosu to Nantong on June 12-18. A 1,000-ton parcel of two grades was on the table for Yeosu to Manila, Philippines, for June 5-15 lifting. A 3,000-5,000-ton cargo was also being worked on from Jakarta, Indonesia, to Dalian, China, for June 5-15 shipment. Sources mentioned an unusual fixture of 2,000 tons Group I base oils from Sriracha to Malacca in mid-May.
Upstream, July ICE Brent Singapore futures were trading at $109.66 per barrel in afternoon trading June 2, compared with numbers at $110.05/bbl on May 26.