Prices for heavy-viscosity base oils have lost ground in Asia over the last several weeks on ample supply and sluggish demand, but suppliers remain hopeful that fundamentals will improve before the winter season sets in.
There is typically a short period of increased demand for base oils in September and October before manufacturers start to wind down production ahead of the year-end holidays, and base stock producers are counting on this burst of activity to lend support to failing prices.
In the API Group II segment, the price of 500 neutral oils is hovering at similar levels to those of Group I solvent neutral 500, leading many downstream manufacturers to use Group II products in their formulations as these base oils offer greater performance than their Group I counterparts.
At the same time, the Group I low-viscosity grade SN150 and Group II 150N continue to enjoy fairly steady demand, allowing producers to maintain offers or achieve small increases of about $5 per metric ton for August shipments.
A similar situation applies to bright stock, as this cut remains snug, and orders continue to flow in steadily, according to suppliers. The price of bright stock has actually increased by $10-20 per metric ton since June, while the value of other Group I heavy-vis cuts has weakened, sources commented.
The drop in Group I base oil prices in Asia has also led to increased buying interest from India and some countries in the Middle East, sources said. Supply of Group I cuts in the Middle East has tightened in June and August, and prices have therefore strengthened, making Asian prices more attractive.
Similarly, imports of Asian Group I oils had declined in India in recent weeks, as consumers preferred to secure product from local sources, but domestic prices have risen and buyers are now looking at other options.
Additionally, since Group II cargoes from the United States and Northeast Asia are also being offered into India at very competitive levels, more manufacturers are able to use these base oils in Group I applications, reducing the need to buy Group I lots from Indian suppliers.
It was also heard that an Indonesian producer closed a tender for a combined cargo of Group I SN130, SN250 and bright stock on August 21, but the results were not forthcoming. The tender seemed to point to the fact that availability from the supplier is ample. There were reports that the said producer had also exported an increased number of spot cargoes to China in July, compared to volumes in June.
A majority of Asia base stock producers continue to run their plants at full rates, and there is additional capacity entering the global market from new projects such as the Chevron Group II plant in Pascagoula, Mississippi, in the U.S., and the Hyundai Oilbank-Shell Group II unit in Daesan, South Korea.
Hyundai Oilbank-Shell was heard to have exported around 1,000-1,500 tons of base oil to term customers in China in late July, and was expected to export as much under contract, plus additional N150 and N500 spot cargoes in late August. A couple of inquiries to move cargoes from Daesan to Singapore and India also emerged this week on the shipping front (see details below).
Group III global capacity additions continue as well, with South Koreas SK and Spains Repsol new Group II/III plant in Cartagena, Spain, slated to start production in mid-September, but producers are confident that technical requirements and more stringent fuel economy and emission standards will continue to absorb the additional tons.
In Asia, it was heard that one Southeast Asian producer has been steadily exporting Group III oils over the past couple of months, and is in a tight supply position this month.
Base oil trading in general was rather subdued in Asia this week as many participants were on holiday, with most prices said to be holding at unchanged levels from the previous week. The price of the Group III 4/6 centiStoke cuts was revised in the range shown below to better reflect current transaction levels.
On an ex-tank Singapore basis, Group I solvent neutral 150 was holding at $1,080-$1,120/t. SN500 was assessed at $1,070-$1,120/t, and bright stock at $1,220-$1,270/t.
On an FOB Asia basis, Group I SN150 was heard at $990-$1010/t FOB. SN500 was assessed at $1,000-$1,020/t FOB. Bright stock prices were holding at $1,170-$1,190/t FOB.
Within the Group II, prices for 150 neutrals were discussed at $1,010-$1,030/t FOB Asia, while 500N was heard at $1,010-$1,040/t FOB Asia.
The Group III segment was steady to slightly firmer, with prices of 4 centiStoke and 6 cSt oils assessed higher by $10/ton at the low end of the range at $1,040-$1,080/t FOB Asia. The 8 cSt grade was holding at $1,020-$1,040/t FOB Asia.
Activity in the shipping segment appeared to have picked up this week, with a few cargoes being quoted from South Korea, including a 2,000-metric ton lot of 600N to be shipped from Yeosu to Manila, Philippines, on August 21-27. A 1,000-ton parcel was being discussed for Yeosu to Anping, Taiwan, for end August/early September shipment.
An 8,000-ton lot was on the table for Daesan to Mumbai, India, and Dubai, United Arab Emirates, for prompt shipment. A 6,000-ton cargo was also expected to move from Daesan to Singapore at the end of August, and a second 4,000-5,000-ton lot of two grades was being quoted for Daesan to Mumbai for end August/early September lifting.
A 3,000-5,000-ton cargo was under discussion from Kainan, Japan, to Hong Kong and Singapore for end August/September 5 shipment, and a second 800-ton lot was expected to be shipped from Kainan to Nantong, China, on August 25-30.
Lastly, a 6,500-ton parcel was being discussed from Mailiao, Taiwan, to Singapore for prompt shipment.
Upstream, October ICE Brent Singapore futures were trading at $102.28 per barrel in afternoon trading on August 25, down from numbers at $102.41/bbl on August 18.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com