Activity was subdued in the Asian base oil market this week as buyers were not ready to commit to purchases. The Diwali holidays observed in India and other Southeast Asian countries contributed to the slow trading pace.
Plentiful availability of most base oil grades–the API Group II cuts in particular–together with a slowdown in downstream segments have resulted in weaker demand for fresh cargoes, suppliers explained.
This trend, together with the volatility of crude oil and feedstock prices over the last several weeks have prompted consumers to adopt a wait-and-see stance, as they expect base oil prices to soften further.
Base oil prices have been losing ground since late July, with most of the major producers in the region adjusting pricing in response to the changing market conditions.
One of the elements that brought about the imbalance in the supply/demand ratio in Asia is the inception of added capacity from the new 650,000 metric tons per year Hyundai Oilbank-Shell Group II base oil plant in Daesan, South Korea. The producer started production in July, with its first shipments heard to have been completed in August.
Other suppliers had been concerned that the start-up of the plant would exacerbate price competition among suppliers. The producer did indeed initially offer attractive pricing for its products and was recently heard to have marked down its spot Group II offers of 150N and 500N to China by around $80/t, according to sources.
But this is not the only black cloud looming large on suppliers horizon, as another Southeast Asian producer is preparing to complete an expansion at its Singapore facilities.
Sources said that ExxonMobil, who announced in June of last year that it would be expanding its Group II capacity at its Jurong site by early 2015, was getting close to completing the plants expansion. Market sources hinted at the fact that the producer would be shutting down the plant for about a month in November to conduct related work.
Although the company has not disclosed the amount of new product expected to come on-stream, talk abounded that output could grow by about 25 to 30 percent, but this could not be confirmed. The plants current capacity is 1,250,000 t/y of Group II oils.
Additionally, ExxonMobil operates a 650,000-t/y Group I plant in Pulau Ayer Chawan, Singapore, which manufactures solvent neutral 100 and SN500.
The company also announced last September that it would be building a new grease plant at its Jurong facility to meet the growing needs of its customers in the region. The company officially broke ground for construction of the new grease plant, located next to its existing lubricant plant, on Sept. 9, and is expected complete the project in 2016.
The additional Group II capacity in Asia will take at least a couple of years to be fully absorbed, a couple of analysts said, although stricter emission and fuel economy controls implemented by the governments in growing economies will require more use of Group II base stock in engine oil blending.
Industry insiders also predict that demand for Group I oils, although still much stronger in Asia than in other regions, will be declining in the next few years. The ready availability of Group II cuts at very competitive prices, sometimes at or below Group I levels, has led to increased substitution as well, sources added. Just like in Europe and the U.S., some Group I producers may have to cease operations, or upgrade their plants, and some new projects might never take off.
Potentially if Chinas and India’s economies do not improve soon, Asian Group I producers might see the same issues as in the U.S. in the early 2000s, a market analyst explained.
Base oil prices in Asia were little changed this week, with the heavy-vis grades said to be exposed to downward pressure as demand is dwindling on seasonal trends.
On an FOB Asia basis, Group I SN150 was assessed at $910-$940/t FOB, while SN500 was steady at $920-$960/t FOB. Bright stock prices were hovering at $1,165-$1,185/t FOB.
Within the Group II segment, prices for 150N were heard at $920-$940/t FOB Asia, while 500N was holding at $940-$970/t FOB Asia. In the Group III segment, supplies appeared to be fairly balanced. Prices of 4 centiStoke and 6 cSt oils were assessed at $1,010-$1,050/t FOB Asia, and the 8 cSt grade was steady at $990-$1,020/t FOB Asia.
On the shipping front, most inquiries involved moving cargoes from South Korea, with a 2,500-ton lot of four base oil grades being discussed from Ulsan to North China for early Nov. shipment. A 1,000-ton cargo of 600N was expected to make its way from Ulsan to Gebze, Turkey, on Nov. 15-30. A 1,000-ton parcel of two grades was likely to be shipped from Yeosu to Merak, Indonesia, in second-half Oct. A 3,000-ton cargo was on the table for Yeosu to Nantong, China, for Oct. 25-30 lifting. A 2,000-ton lot of two grades was expected to be shipped from Onsan to Tianjin, China, around Nov. 4-8.
In Taiwan, a 2,100-ton lot of three grades was likely to be shipped from Mailiao to Gebze for Nov. 15-30 lifting.
In Japan, a 1,500-ton parcel was being worked on from Yokkaichi to Tianjin for Nov. 1-10 shipment.
Upstream, November ICE Brent Singapore futures were trading at $85.92 per barrel in afternoon trading on Oct. 27, compared to $86.04 per barrel on Oct. 20.