Asia Base Oil Price Report


Concerns about potential oversupply issues have worried the Asian base oil segment for a number of years. Now the completion of construction and expansion projects is making oversupply a reality, and it may be some time before the market regains its balance.

One of these projects is the new Hyundai Oil Bank-Shell base oil plant in Daesan, South Korea, which has the capacity to churn out 650,000 metric tons per year of API Group II oils. The plant was heard to be up and running, and could be making its first shipment of light grades as early as the end of July, market sources said, with the main target for the producers cargoes likely to be the Chinese market.

Other sources were slightly more skeptical about the timing of the new capacity, saying that the producer will likely need some time to stabilize production and fill its tanks. Furthermore, most of the output from the plant is expected to feed Shells own downstream lubricant production facilities, so it was not clear how much product would be available to other consumers.

Nevertheless, the introduction of additional capacity will coincide with a seasonal slowdown in demand amid ample availability of most grades, and many producers fear that this could place downward pressure on already precarious base oil prices.

Base stock demand in Asia – particularly in China – has seen some weakening over the last few weeks, as the market has entered the pre-fall/winter period, when activity in several finished lubricants segments typically declines.

This situation, together with very high feedstock prices throughout the month of June, prompted a number of producers to reduce base oil production in favor of transportation fuels, which yield better margins at the moment.

One of these producers is Formosa Petrochemical Corp. in Taiwan, which cut its base stock production to slightly less than 80 percent of capacity. As a result, the supplier does not have any spot availability for July, but given that demand in China has dropped, the supplier said that slashing operating rates has not had a major impact on the market or on its contract customers.

FPCC is currently evaluating its August plans for production and shipments, and its actions will largely hinge on the prices of crude oil and derivatives, which have softened in the last week, but continue to hover well above the U.S. $100 per barrel mark.

Most producers are currently exposed to the same kind of pressure from hefty production costs. Another Taiwanese producer, CPC-Shell, has not run one of its base oil production trains since last year due to unfavorable margins. The companys 120,000-t/y Group I low-viscosity train, which manufactures solvent neutral 150, was shut down in June 2013 for a routine turnaround and has not been restarted.

The joint venture is still running its SN500 and bright stock trains, but the whole 250,000-t/y plant is expected to shuttered permanently in September/October, ahead of the scheduled decommissioning of CPC Corp.s Kaohsiung refinery in 2015.

The imminent shutdown of the CPC-Shell Group I heavy-vis plant was anticipated to tighten the regions supply of heavy-vis grades, particularly bright stock. Bright stock continues to be one of the top performers in terms of price stability, as supply remains tight, allowing producers to hold firm on price ideas, and even to achieve increases. Sources said that July shipments of bright stock had been priced around $5 to $10 per ton above June numbers. However, the situation could be reversed with the start of the fall/winter season in late August and September, when demand for the heavy-vis grades tends to decline.

In Japan, a reduction in crude distillation at Tonen Generals Wakayama refinery has not affected base oil production, an industry source said. Tonen General decommissioned two of its six crude distillation units (CDUs) in Japan and invested in raising residue cracking capacity to meet government mandates to improve refinery efficiency. The company reported to the local media that the 38,000 b/d No. 2 CDU at its Wakayama refinery had been shut down in March. The base oil unit in Wakayama has the capacity to produce 370,000 t/y Group I oils.

An increased number of shipping inquiries to move product from Japan to several Asian destinations had surfaced in the previous two weeks, but sources said it was not necessarily a sign that domestic demand had eased. Base oil exports can be seasonal, so volumes will fluctuate quarterly, a source explained. Despite an expected decrease in domestic requirements over the next few years, especially for Group I grades, the drop is not going to be that drastic, the source added. While some suppliers cut prices compared to the previous quarter, it was difficult to ascertain the amount of the decreases because of the variety of pricing formulas used by the market.

Japan was hit by the first typhoon of the season last week. Super-typhoon Neoguri hit the island of Okinawa on July 8, where it caused severe flooding and power cuts, but the cyclone weakened as it moved over the rest of the Japanese territory.

Nansei Sekiyu KK, a Japanese refiner wholly owned by Brazil’s Petrobras, suspended oil refining operations at its 100,000-b/d Nishihara refinery in Okinawa on July 7, according to local media reports. There was confirmation regarding possible shutdowns at Japanese base oil plants.

Base oil prices in Asia were generally stable this week, with trading said to be subdued as buyers maintain a cautious stance. On an ex-tank Singapore basis, Group I SN150 was heard at $1,080-$1,120/t. SN500 oils were assessed at $1,080-$1,130/t, and bright stock was mentioned at $1,210-$1,270/t.

On an FOB Asia basis, Group I SN150 was assessed at $990-$1010/t FOB. SN500 was holding at $1,010-$1,030/t FOB, and bright stock prices at $1,160-$1,190/t FOB. The top end of the bright stock range reflects offers, with transactions taking place around the mid-point of the spread.

Group II 150 neutral was steady at $1,020-$1,050/t FOB Asia, while 500N was mentioned at $1,030-$1,060/t FOB Asia.

In the Group III segment, 4 centiStoke and 6 cSt cuts were unchanged at $1,030-$1,080/t FOB Asia, and the 8 cSt grade was holding at $1,020-$1,040/t FOB Asia.

On the shipping front, fresh interest to move cargoes from South Korea was noted, with a 4,500- to 5,000-ton lot of several grades being discussed for Yeosu to Chennai and Mumbai, India, for second-half July shipment. A 1,000-ton lot was expected to be shipped from Ulsan or Yeosu to Taichung, Taiwan, between July 20 and August 5. A second 1,500-ton cargo of two grades was also quoted for Yeosu to Taichung for July 20-24 lifting.

Elsewhere, a 4,000- to 6,500-ton parcel was on the table for Mailiao, Taiwan, to Sharjah, United Arab Emirates, for end July/early August shipment. A 1,750-ton SN500 cargo was being worked on for Sriracha, Thailand, to Jurong, Singapore, for second-half July lifting. A 2,000-ton plus 1,000-ton combination lot was in discussions for Cilacap, Indonesia, to Taichung for July 25-30 shipment.

Upstream, August ICE Brent Singapore futures were trading at $106.63 per barrel in afternoon trading July 14, compared with numbers at $110.47/bbl on July 7.

Gabriela Wheeler, based in Japan, can be reached directly at

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