Base oil prices in Asia ended the year on a low note, and it will take more than a pickup in demand to change the tempo at which values have been moving, with oversupply and collapsing crude oil prices cited as the main culprits of the sharp downward price trend.
While many participants hold out hope that base oil demand will improve ahead of the Lunar New Year holidays celebrated in many countries on Feb. 19-24 – as buyers may replenish inventories depleted at the end of the year – others doubt that this will provide the impetus needed to send prices on their way to recovery.
A few participants pointed out that business sometimes actually slows down ahead of the Lunar New Year, because downstream manufacturing facilities idle operations temporarily to allow workers to return to their home towns during the holidays.
Furthermore, many consumers will still be working down stocks that were acquired during the last quarter of 2014, when demand from the lubricants segment had experienced a sharp slump, particularly in China, on a general economic slowdown.
One of the main factors that influences pricing is the outlook for crude prices – if crude is still very volatile, then consumers will be cautious about securing base oil volumes as prices may continue to decline, and buyers want to avoid the risk of being caught with higher-priced inventories.
Crude oil prices have plunged by around 50 percent since mid-year, and while it took a while for base oil values to catch up with the downward adjustments, the price drops in spot pricing have been quite significant.
Most API Group II base oil spot prices fell by around 35 percent since July 2014, when demand was fairly healthy, but new capacity – of Group II oils in particular – was starting to come on stream in Asia.
The price of Group II 150 neutral was hovering at $1,020-1,050/t FOB Asia in mid July, but fell to $670-690/t FOB Asia in late December. Similarly, the 500N cut was assessed around $1,030-1,060/t FOB Asia in mid-July, compared with $680-710/t FOB Asia in December.
During the same timeframe, August Brent futures were trading at around U.S. $110 per barrel in mid-July, and February values plunged to around $57 per barrel in late December.
Aside from tumbling crude oil and feedstock values, there is also the element of additional capacity coming on stream early this year, including the new Takreer/ADNOC (Abu Dhabi National Oil Company) plant in the United Arab Emirates, which is slated to come on line in late first quarter/early second quarter of 2015, bringing 100,000 t/y of Group II and 500,000 t/y of Group III oils into the market.
While most of the new capacity will not be located in Asia, it will definitely affect market dynamics as Middle East cargoes are expected to compete with Northeast Asian, European, and U.S. material – particularly in places such as India – and within the Middle East itself, where large quantities of Northeast Asian product has found its way in recent years whenever prices were considered competitive.
A few facilities in Asia are expected to undergo routine maintenance in the first quarter of the year, which could marginally help the supply/demand balance, and others will be resuming operations after maintenance shutdowns.
Such is the case of Sinopec Jingmens facility in Jingmen, Hubei province, which is likely to be restarted in early January. The plant produces approximately 200,000 metric tons of Group I and 100,000 t/y of Group II oils per year.
It was also heard that the Sinopec Jinan plant in Jinan, Shandong province, which has a capacity of 150,000 t/y Group II base oils, was expected to restart in mid-January, following a turnaround that started in mid-December.
There were reports that Taiwanese producer Formosa Petrochemical would be shutting down its 600,000 t/y Group II plant in Mailiao for a one-month maintenance program in March.
SK Lubricants was also heard to be planning to idle its 1.97 million t/y Group II/III plant in Ulsan, South Korea, for maintenance in March, but there was no producer confirmation about its shutdown schedule.
Prices in Asia were generally assessed unchanged as trading was subdued on account of the yearend holidays.
On an ex-tank Singapore basis, Group I SN150 prices were assessed at $810-$840/t, and SN500 at $800-$850/t. Bright stock was holding at $1,140-$1,170/t.
Group I SN150 was steady at $710-$740/t FOB, while SN500 was mentioned at $690-$710/t FOB. Bright stock prices were assessed at $1,090-$1,120/t FOB.
Within the Group II segment, prices were gauged at $670-$690/t FOB Asia for 150N, and at $680-$710/t FOB Asia for 500N.
Group III prices were fairly stable, with the 4 centiStoke and 6 cSt oils at $1,000-$1,020/t FOB Asia and the 8 cSt grade at $900-$920/t FOB Asia.
On the shipping front, there were few fresh inquiries spotted during the week, with a 1,000-metric ton cargo still quoted to be shipped from Ulsan, South Korea, to Zhapu, China, for Jan. 5-10 lifting, and an 800-ton lot expected to move from Ulsan to Tianjin, China, on the same dates. A 1,000-ton parcel was on the table for Yeosu, South Korea, to Merak, Indonesia, for Jan. 20-30 shipment, and a similar 1,500-ton cargo of two base oil grades to cover the same route on similar dates.
Upstream, February ICE Brent Singapore futures were trading at U.S. $55.45 per barrel in afternoon trading on Jan. 5, compared to numbers at $59.91 per barrel on Dec. 29.