February has been fairly disappointing for base oil suppliers in Asia, because demand has not improved as much as expected following the Lunar New Year holiday.
A couple sellers said they had seen a slight increase in the number of inquiries from customers looking for spot cargoes, but not many of them had turned into actual transactions. It seems buyers are currently testing the waters and assessing current availability of product, but are not willing to commit, sources explained. Since supply does not appear to be a problem, many consumers are delaying purchases as much as possible.
Buyers admitted that they were able to cover most of their product needs through long-term arrangements previously agreed pricing formulas, while there has been less interest in acquiring spot cargoes. Spot discussions have therefore been thin.
Suppliers said that volumes moving under term contracts were healthy, and at least two Northeast Asian suppliers had already placed all of their production and had little to no oil left for spot business. A third producer said it had sold significant volumes to India in February, so it did not have much spot availability.
It still was not clear how much extra product would be needed to cover requirements from downstream applications, as sales in the blending segment have not yet reached the levels expected during the peak spring season, a buyer said. Activity in the finished lubricants sector typically runs high during the March to May timeframe, and base stock demand could be picking up significantly in the next couple of weeks. A supplier said demand had started to show some improvement, but that it was nothing exceptional and near expectations at this time of the year.
Sellers in China lamented the large volume of oil sitting in tanks, waiting to be sold, and the fact that traders had been cutting prices to attract buyers because of the need to improve cash flow.
On the other hand, participants said Southeast Asian suppliers had been trying to increase export prices by U.S. $20 to $30 per metric ton, but their intentions had not been successful because there was plenty of product available and price expectations were actually going down in China.
Sources said that Thai producer IRPC was expected to have a turnaround at its 312,000 t/y API Group I plant in Rayong in March, while PetroChinas 245,000 t/y Group I refinery in Dalian, China, was likely to shut down for maintenance in April.
Regional supply was expected to tighten, and offers from suppliers had therefore increased – particularly for solvent neutral 500 as demand for the high-vis grades was anticipated to strengthen during the spring months, sources added. Offers of Group III cuts ex-Malaysia had also moved up, as the producer was heard to have limited spot availability.
Supply levels were anticipated to improve in late March or April as Chinese producer Sinopec will be restarting its 150,000 t/y Group II base oil plant in Jinan in March and its 100,000 t/y Group II unit in Jingmen in April. The Jinan plant has been offline since November 2013 following an explosion caused by a pipe leak, while the Jingmen unit has been down since early January due to feedstock supply problems and an extended turnaround.
Sinopec is also expected to start up its 240,000 t/y Group II plant in Yanshan in March.
Given last weeks spot price discussions in China and elsewhere in the region, the price ranges portrayed below have been revised to reflect transactions, as well as bids and offers.
In the Group I segment, bright stock continued to be exposed to upward pressure because it was in snug supply and this particular viscosity grade cannot be easily replaced. Other Group I grades have seen small downward adjustments. Consumers of Group I are currently able to purchase Group II material with equivalent properties at comparable prices.
Group I SN150 was heard at $930-$970/t FOB Asia, $20 per ton lower at the top end of the range because discussions have been taking place in a narrower range. The SN500 cut was assessed unchanged at $1,030-$1,070/t, and bright stock at $1,130-$1,180/t, reflecting a $10/t upward adjustment at the low end of the spread, all FOB Asia.
Prices for Group II material were heard at $990-$1,050/t FOB Asia for 150 neutral, reflecting a $10 decrease at the high end, and at $1,030-$1,100/t FOB Asia for 500N, $30 lower than the previous week on softening indications in China.
In the Group III segment, prices were stable, with the 4 centiStoke and 6 cSt oils assessed at $1,030-$1,060/t FOB Asia, and the 8 cSt grade hovering at $1,020-$1,050/t FOB Asia.
On the shipping front, a 3,000-ton cargo of base oil was still being discussed from Ulsan or Yeosu, South Korea, to Nantong, China, for shipment Feb. 20-25. A 1,000-ton parcel was on the table for Ulsan or Yeosu to Tianjin, China, for second half February or early March shipment. A second 1,000-ton lot was also expected to be shipped from Ulsan or Yeosu to Tianjin on March 10-14 and delivered around March 17. A 2,250-ton cargo of two grades was expected to cover Mailiao, Taiwan, to Mumbai, India, in early March. A large 5,000-ton lot was likely to be shipped from Kainan, Japan, to Hong Kong and Singapore on March 6-10.
In Southeast Asia, a 4,000-ton parcel composed of SN500 and bright stock 150 was quoted from Rayong, Thailand, to Nantong for shipment at the end of February or early March.
Upstream, March ICE Brent Singapore futures were trading at $109.96 per barrel during the Asian trading day on Feb. 24, compared with $109.10/bbl on Feb. 17.
Gabriela Wheeler, based in Japan, can be reached directly at Gabriela@Lubesngreases.com