The prospect of further price weakening is keeping Asian base oil buyers on the sidelines, as lower offers fail to entice takers in a well-supplied market.
API Group I and II prices have seen significant decreases in the last two months, but this has not led to increased buying interest because buyers become cautious in a falling market, sources said.
Most base stock segments are well- to over-supplied, but sluggish conditions in the downstream lubricant sector have placed a damper on purchases, sellers lamented.
With the recently added Group II capacity from the new Hyundai Oilbank-Shell plant in Daesan, South Korea, prices of Group II cuts are at similar levels or even below Group I numbers, with buyers opting for the higher performance cuts given the lack of price differentiation.
The ample Group II availability, together with weakening prices for these grades, have also exerted downward pressure on Group I indications.
Given the recent decline in crude oil and feedstock costs, buyers believe there is still room for base oils to move down, but producers contend that margins are already squeezed. Brent crude dropped below $90 per barrel for the first time since June 2012 on the back of increased supply and expectations that the global economic growth rate will slow in 2015.
Base stock producers may have to consider cutting production if they want to keep afloat, sources said. A Northeast Asian producer is already running its Group II plant at reduced rates and may have to trim capacity further if conditions do not improve.
The likelihood of an improvement is dim, however, at least in the short term, sources said. The lubricants segment may experience a brief uptick before yearend, but downstream production facilities either reduce running rates or shut down during the holidays, which impacts base oil demand.
Additionally, the arrival of the cold weather in countries such as China, South Korea and Taiwan results in reduced requirements for high-viscosity grades, sources said.
The Asian market appears oversaturated with product, and there are additional cargoes being offered from other regions, most notably the United States, where prices have been under pressure.
Further price reductions in the U.S. domestic market this week are also expected to yield falling export indications. Motiva initiated a round of price decreases for Group II oils on Oct. 1, and has since been joined by Chevron, Calumet, Flint Hills Resources, and Phillips 66.
U.S. producers HollyFrontier, ExxonMobil, Paulsboro and Calumet have also stepped out with decreases on Group I oils. Bright stock was subject to the lowest decreases as it is heard to be in tight supply.
Similarly, in Asia, bright stock prices have been holding at fairly steady levels since the beginning of the year, although moderate downward adjustments were observed in August and September.
U.S. Group II suppliers have been especially active in the Indian market, fueling competition with regional suppliers and declines in domestic pricing.
Current offers for Group II cuts are around $50-70 per metric ton lower than in August, sources said, with 150N at an average of $960/ton CFR India and 500/600N at around $1,010/ton CFR.
However, transactions are difficult because inventories are plentiful and consumers are reluctant to stock what they consider to be high-priced product if prices are likely to continue falling. Furthermore, the Diwali holiday in late October is also expected to intensify the slowdown in requirements.
Similarly, trading activity in other parts of Asia continues to be subdued and prices remain on tenuous ground. Recent Group II adjustments have resulted in 150N spot indications at around $920-940/ton FOB Asia, down from $1,010-1,030/ton in August, while 500N was mentioned near $940-960/ton FOB Asia, down from $1,020-1,040/ton a few weeks ago.
The published Asia price ranges have been revised to reflect current buying and selling indications.
On an FOB Asia basis, Group I SN150 was assessed down by $70/ton to $910-$940/t FOB, while SN500 was heard at $920-$950/t FOB. Bright stock prices were softer at $1,145-$1,165/t FOB.
Within the Group II segment, prices for 150N were revised down by $70/ton to $920-$940/t FOB Asia, while 500N dropped $60/ton to $940-$960/t FOB Asia.
Group III prices were notionally adjusted down, although confirmation of concluded transactions was unavailable. Prices of 4 centiStoke and 6 cSt oils were assessed at $1,010-$1,050/t FOB Asia. The 8 cSt grade was gauged at $990-$1,020/t FOB Asia.
In terms of shipping inquiries, discussions to move product from South Korea seemed to have picked up the pace this week, with a 2,600-metric ton cargo of three base oil grades being worked on from Ulsan to Shanghai and Zhenjiang, China, for second half October shipment. A 500 ton lot was expected to be shipped from Yeosu to Taichung, Taiwan, before Oct. 26. A 3,000 ton parcel of four grades was on the table for Yeosu to Merak, Indonesia, for delivery in early November. A 6,000 ton cargo was likely to make its way from Daesan to Singapore for Oct. 22-26 lifting, while a second 1,000-2,000 ton lot was also expected to cover the same route with Oct. 20-30 shipment dates. A 2,000 ton cargo of two grades was being discussed from Daesan to Godau, Vietnam, for Nov. 6-12 lifting.
Lastly, a 2,000-ton cargo of two grades was being quoted from Mizushima, Japan, to Ulsan for Oct. 15-20 shipment.
Upstream, November ICE Brent Singapore futures were trading at $88.14 per barrel in afternoon trading on Oct. 13, compared to $92.55 per barrel on Oct. 6.