Asia Base Oil Price Report

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The base oil market in Asia continues to follow a familiar summer pattern, with availability more than adequate to quench lackluster demand.

Aside from the fact that most regional producers are running plants at close to full rates – with the exception of perhaps a couple of suppliers, including Formosa in Taiwan – the influx of cargoes from other regions such as the United States and the introduction of new volumes from the Hyundai Oilbank-Shell joint venture in South Korea are expected to increase the supply overhang in Asia.

U.S. base oils are regularly shipped to India, although spot volumes had been cut back the past couple months because the U.S. domestic market had tightened. This was partly the result of an extended turnaround at the API Group II Excel Paralubes plant in Westlake, Louisiana. Output from this plant is shared by U.S. suppliers Flint Hills Resources and Phillips 66. Both producers were heard to be meeting term customer orders as scheduled, but there was little spot material available during the turnaround, which started in June and was originally anticipated to last through the end of August.

However, there were reports that the maintenance work at Excel Paralubes would be completed ahead of schedule, and the plant seemed likely to restart around August 9. This means that the producers would be able to start rebuilding inventories faster, and spot cargoes would become available earlier than expected.

Furthermore, this situation has coincided with the introduction of additional Group II output from the new Chevron plant in Pascagoula, Mississippi. While product from this plant has not been directly earmarked for the Asian market, other U.S. producers were expected to try placing base oils overseas if the U.S. domestic system becomes flush with product. Some of those barrels may be finding their way to markets such as India.

Aside from U.S. product, it was heard that Indian buyers would have the option to secure base oils from the Middle East. Heavy-viscosity cuts of Middle Eastern origin had been scarce during Ramadan, but more offers were anticipated since the holiday ended.

The additional Group II availability in the region has fueled competition between Group I and Group II prices, and the price gap between these two categories has almost disappeared in places like India.

Meanwhile, Asian producers continued to express concern about the sluggish conditions in another key base oils market: China. Demand there has been disappointing since June, and suppliers are not very optimistic that the situation will change much before the start of the fourth quarter. However, suppliers held out some hope that consumption would pick up in September and October ahead of the pre-holiday production cycle in downstream markets.

Aside from lukewarm demand in China, the resumption of production at temporarily idled facilities is expected to add to the oversupply, although the impact will be partly offset by other units being taken off-line.

It was heard that Shandong Qisheng Industry in Shandong would be restarting its Group II base oils unit in mid-August. The plant, with capacity of 70,000 metric tons per year, was shut down in early June for maintenance, and weak market economics delayed the start-up from an original target in July. Sources also reported that PetroChinas plant in Lanzhou, Gansu province, will resume production in late August. Its capacity is 300,000 t/y of Group I oils and 400,000 t/y of Group II.

In related news, it was heard that a fire broke out at China National Petroleum Corp.s (CNPC) Lanzhou Petrochemical Co. Ltd. 250,000-b/d refinery and petrochemical plant on August 4. The fire, the result of a leak in a 300,000 t/y gas fractionation unit, was quickly extinguished with no injuries reported. Sinopecs plant in Gaoqiao is expected to be taken off-line for maintenance in early September, market sources said. It can produce 300,000 t/y of Group I and around 300,000 t/y of Group II oils. Sinopec also shut its 50,000 t/y Group I base oils unit in Nanyang, Henan province, in early August for a 45-day turnaround, sources added.

In terms of pricing, few changes were reported in Asia during the week, as trading remained quite subdued. On an ex-tank Singapore basis, Group I solvent neutral 150 was assessed at $1,080-$1,120/t. SN500 was heard at $1,070-$1,120/t, and bright stock was mentioned at $1,210-$1,270/t.

On an FOB Asia basis, Group I SN150 was holding at $990-$1010/t FOB. SN500 was assessed at $1,000-$1,020/t FOB. Bright stock prices were reported at $1,170-$1,190/t FOB.

Group II prices remained exposed to downward pressure, but were unchanged this week. Prices for 150 neutrals were heard at $1,010-$1,030/t FOB Asia, while 500N was assessed at $1,010-$1,040/t FOB Asia. In the Group III segment, 4 centiStoke and 6 cSt oils were steady at $1,030-$1,080/t FOB Asia, and the 8 cSt grade was heard at $1,020-$1,040/t FOB Asia.

On the shipping front, there was less activity than in recent weeks, but a number of inquiries were heard. For product moving from South Korea, a 2,500-3,000-metric ton lot was being discussed from Ulsan to Chittagong, Bangladesh, for August dates. A large 7,000-ton parcel of premium lubes was on the table for Onsan to Taicang, China, for August 7-14 lifting. A cargo of 1,000 tons plus 500 tons of base oil was expected to be shipped from Yeosu to Merak, Indonesia, for August 10-20 shipment. A smaller lot of 550 tons plus 450 tons was quoted for Yeosu to Ho Chi Minh, Vietnam, for August 10-20 lifting.

A 5,000-ton lot was expected to be shipped from Sharjah, United Arab Emirates, to Port Klang, Malaysia, for prompt lifting. An interesting 11,800-ton base oil cargo made up of three grades was being discussed for Augusta, Italy, to Singapore for August 20-24 shipment.

Upstream, September ICE Brent Singapore futures were trading at $104.81 per barrel in afternoon trading August 7, compared with numbers at $107.73/bbl on July 28.

Gabriela Wheeler, based in Japan, can be reached directly at gabriela@LubesnGreases.com

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