Asia Base Oil Price Report


Bearish market sentiment continues to reign in the Asian base oil market, brought on by sluggish demand, plentiful supplies and volatile feedstock costs.

Base stock prices continue to be exposed to downward pressure, and November shipments are likely to experience further softening given a seasonal slowdown in demand and the need for suppliers to reduce inventories ahead of the end of the year.

At the same time, buyers prefer not to end December with hefty stocks, and are therefore expected to secure only the volumes required to keep day-to-day operations running.

Falling price indications in other regions such as Europe and the U.S. have added to producers concerns regarding weakening pricing, because competitive imports from other regions have a direct impact on Northeast Asian suppliers offers into countries such as India.

U.S. API Group I, II, II+ and III producers had just completed a round of price decreases on Oct. 13, when Motiva stepped out with another price decrease for its Group II oils, effective Nov. 3. ExxonMobil and Paulsboro also communicated decreases on their Group I bright stock.

While a downward adjustment typically takes place before the end of the year as a means to entice buyers to take more product, it is unusual for one decrease to follow another so closely. However, given the current oversupply situation, there has been fierce competition among producers and this has led to the consecutive decreases, sources said.

In India, base oil requirements were expected to improve only marginally following the recent holidays, given that buyers monitor inventories carefully ahead of the expected year-end slowdown in downstream demand. Supply is said to be plentiful, because of the availability of regional cargoes, and of attractively-priced U.S. material.

While the downward trend observed on a global scale appears to be affecting most markets in Asia, Japan continues to be slightly sheltered from its direct effect because the Japanese market is quite regulated, sources said.

While there are expectations that base oil prices will see significant downward adjustments, pricing in Japan is based on a formula that takes into account naphtha CIF (cost, insurance and freight) prices over a three-month period. This allows for pricing to be more predictable and there has only been a slight decrease so far, sources explained.

Nevertheless, Japanese participants said that the domestic lubricants market has been going through a very difficult period, because of a weakening of the yen and the availability of lower-priced imports from Southeast Asia.

Aside from weakening demand and ample availability, the recent drops in crude oil and feedstock prices are also seen as major factors impacting base oil prices in Asia.

However, producers said that despite the weaker crude oil and raw material costs compared to earlier in the year, the lower base oil values were yielding very lean margins, which might force a few producers to lower operating rates.

The last quarter is also a time when some manufacturers opt for performing maintenance at their plants because of the dwindling market activity.

So far, it was heard that Sinopec Jingmen would be conducting a two-month turnaround at its 200,000 t/y Group I and 100,000 t/y Group II plant in Hubei province, starting in November.

In the realm of pricing, on an ex-tank Singapore basis, Group I solvent neutral 150 prices have been adjusted down to $1,050-$1,100/t and SN500 to $1,040-$1,100/t. Bright stock was assessed at $1,200-$1,245/t, although this cut has been exposed to less downward pressure than the rest of the Group I cuts because of healthy demand and snug supply.

On an FOB Asia basis, Group I SN150 was assessed at $910-$940/t FOB, while SN500 was unchanged at $920-$960/t FOB. Bright stock prices were heard 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, few changes were reported. Prices of 4 centiStoke and 6 cSt oils were assessed at $1,010-$1,050/t FOB Asia, and the 8 cSt grade was gauged at $990-$1,020/t FOB Asia.

On the shipping front, a number of inquiries popped up intended to move product from South Korea to several destinations in Asia. A 1,000-metric ton cargo was being quoted from Ulsan to Gebze, Turkey, for Nov. 15-30 shipment. A second 1,000-1,400-ton lot of two base oil grades was expected to be shipped from Yeosu to Merak, Indonesia, for delivery by Nov. 28. A 5,000-ton parcel was being worked on from Yeosu to Nantong, China, for prompt shipment. A 2,500-ton cargo was likely to be shipped from Yeosu to Tianjin, China, on Nov. 11-15. A 1,500-ton cargo of 600N was being discussed for Yeosu to Taichung, Taiwan, for Nov. 1-20 shipment. A 1,000-ton parcel of two grades was expected to be shipped from Yeosu to Ho Chi Minh, Vietnam, on Nov. 15-30. A 2,300-ton parcel was on the table from Daesan to Godau, Vietnam, for Nov. 20-30 lifting.

There was also a 2,100-ton parcel being quoted from Mailiao, Taiwan, to Gebze for Nov. 15-30 lifting. A 1,000-ton cargo was expected to be shipped from Hong Kong to Bangkok, Thailand, in first half Nov., while a second 500-ton lot was being discussed from Hong Kong to Singapore, also for shipment during the same dates.

Lastly, a 4,000-5,000-ton cargo was likely to be shipped from Yokkaichi, Japan, to South China during the first half of Nov.

Upstream, November ICE Brent Singapore futures were trading at $85.21 per barrel in afternoon trading on Nov. 3, compared to $85.92 per barrel on Oct. 27.

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