Sentiment in the Asian base oil market remains bearish, with buying interest described as lukewarm against an abundance of spot offers, and prices exposed to downward pressure on lower crude oil and feedstock prices.
While base stock suppliers had been holding on to hopes that demand would start to improve in September, negotiations have so far yielded few encouraging signs. Requirements in China and Taiwan, for instance, decreased in August compared to July, and it looks like there will not be a significant improvement in September, judging from current discussions.
Taiwanese buyers have by and large been staying away from imports because domestic supply is more than adequate, and prices are more competitive, sources said. This has forced sellers from South Korea and Southeast Asia, who had previously been selling cargoes to Taiwan, to look for buyers elsewhere.
At the same time, the upcoming permanent closure of the 250,000 metric tons per year CPC-Shell API Group I plant in Kaohsiung has spurred concerns about a possible shortage of heavy-viscosity cuts and bright stock. The CPC-Shell plant has only been producing solvent neutral 500 and bright stock since June 2013 due to weak market economics, and will shutter before the end of the year ahead of the decommissioning of CPCs Kaohsiung refinery in 2015.
China is typically a key market that takes a vast amount of imports, sources explained, but appetite has been sluggish because of soft downstream demand, while many buyers have been able to meet requirements through local product.
A majority of base oil plants have been running well in China, and a couple of those that were undergoing turnarounds resumed production last month.
Sinopec Jingmen was heard to have restarted its 100,000 t/y Group II plant in Hubei last week, following a one-month shutdown. Qisheng Industry also restarted its 70,000 t/y Group II unit in Shandong in late August. The facility had been taken offline in June and was expected to be restarted in July, but the process was delayed for a month.
Another base oil market that has seen downward price pressure is India, where there has been an increase in Group II offers for U.S. product on the back of burgeoning capacity in that country. With the start-up of the new Chevron plant in Pascagoula, Miss., there has been a displacement of material and suppliers have had to find alternative outlets for their product. Additionally, domestic posted prices in the U.S. have seen reductions, which have also affected export offers.
India has long been the target of competitive activity among a number of U.S. Group II producers, and offers for Group II 500N and 600N have moved down from August levels, sources said. Spot prices for 500N/600N were heard at around $1,060-$1,075/ton CFR India, reflecting a $20/ton drop from August levels.
Northeast Asia producers also mentioned that demand from Southeast Asia had remained lackluster over the past several weeks.
In Indonesia, base oil participants had expected the situation to improve after the presidential elections, and the end of the Muslim holiday period in July. However, the election process has been contentious as the results were challenged by Prabowo Subianto, the former army general who lost the countrys election by 6 percentage points. On Aug. 21, Indonesias Constitutional Court ruled that Subianto had failed to prove allegations of widespread voting irregularities, and cleared the way for the new president, Joko Widodo, to assume office in October.
Indonesian producer Pertamina closed a tender for a combined cargo of Group I SN130, SN250 and bright stock on Aug. 21, but reports circulated that the tender had been scrapped, possibly because of a combination of lack of interest and low prices. It was also heard that the producer would be shipping fewer spot cargoes to China in September as compared to August.
Trading activity was thin in Asia because buyers have adopted a wait-and-see attitude, in hopes of being able to secure lower prices if purchases are delayed. Prices were generally flat and remained exposed to downward pressure.
On an ex-tank Singapore basis, Group I solvent neutral 150 was heard 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 quoted at $990-$1010/t FOB. SN500 was assessed at $1,000-$1,020/t FOB. Bright stock prices were heard at $1,170-$1,190/t FOB.
Within the Group II segment, prices for 150 neutrals were mentioned 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 largely unchanged, with prices of 4 centiStoke and 6 cSt oils assessed at $1,040-$1,080/t FOB Asia. The 8 cSt grade was holding at $1,020-$1,040/t FOB Asia.
The fairly muted mood seen in the base oil market translated into very few inquiries on the shipping front, with a 3,700-metric ton lot composed of two grades being quoted from Port Klang, Malaysia, to Hamriyah, United Arab Emirates or Yanbu, Saudi Arabia, for prompt lifting. A total of 6,750 tons of base oils in six parcels of two grades were discussed from Fawley, United Kingdom, to Sharjah and Jebel Ali, U.A.E., for Sept. 7-10 shipment.
Upstream, October ICE Brent Singapore futures were trading at $102.87 per barrel in afternoon trading on Sept. 1, slightly up from numbers at $102.28/bbl on Aug. 25.