Asia Base Oil Price Report

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Activity in the Asian base oils market appears to have lost some of the luster observed a couple of weeks ago, when buyers had rushed to place orders in hopes of beating potential price increases.

With a few base oil grades tightening, and crude oil prices bouncing back, spot offers seemed on their way to recovery, and even edged up slightly for some cuts, but the upward momentum appears to have slowed for the time being.

Crude oil prices were playing an important role in lifting market sentiment, as futures rallied about 50 percent over the past six weeks on talk that major oil producers planned to freeze output at January levels to help reduce the global supply glut.

After soaring to three-month highs of more than U.S. $41 per barrel for Brent and above $39 per bbl for West Texas Intermediate two weeks ago, the crude rally stalled early in the week because Iran appeared determined to increase – or at least restore – its crude exports to pre-sanction levels, and a production freeze by OPEC members seemed less likely.

However, on March 17, Qatari oil minister Mohammed Bin Saleh Al-Sada said producers from within and outside OPEC had agreed to meet in Doha on April 17 to discuss plans for a freeze in output, which drove futures up.

ICE Brent Singapore May futures ended the afternoon trading session at $40.72 per bbl on March 21, compared to $40.04 per bbl on March 14.

With crude oil prices showing volatility over the last few days, many market participants have taken a step back to assess what direction base oil spot values would be taking in the next few weeks.

Given that this week is also a transitional time between the wrapping up of March orders and the start of April discussions, fewer deals were concluded, sources said.

Despite tighter conditions for certain base oil grades such as the API Group II 150 neutral and 500N/600N on improved demand and upcoming plant turnarounds, buyers in general did not seem concerned about a supply shortage.

In China, however, there was a sense that supply in certain pockets of the market would be snug in coming weeks, particularly the heavy-viscosity grades, as requirements tend to increase in the summer months.

Furthermore, it was also heard that Taiwanese producer Formosa Petrochemical would be exporting fewer Group II spot cargoes to China in April given its upcoming turnaround.

As mentioned last week, Formosa was heard to be planning a two-month maintenance shutdown at its 600,000 metric ton per year plant in Mailiao starting in late June. The producer is building inventories to cover contractual commitments during the outage and limiting spot sales, sources said.

While base oil supply conditions could tighten in China over the next couple of months, players were keeping a cautious stance regarding demand from downstream finished lubricant segments, which have shown lackluster growth over the past year due to economic conditions and reduced export levels.

Economic growth in China has been weaker than expected and expanded at its slowest pace in 25 years in 2015, registering a 6.9 percent rate compared with a 7.3 percent gain reported in 2014. Analysts predicted another tough year for 2016.

This week, the Chinese government approved a new five-year plan targeting an economic growth rate of 6.5 to 7 percent a year to 2020. The measures include reducing high debt, streamlining state-owned enterprises, and reforming financial markets.

China’s Premier Li Keqiang acknowledged that there would be job losses as reforms were carried out at state-owned enterprises, particularly in the steel and coal industries, but stressed that there would be no mass redundancies.

Base oil price indications in Asia were largely unchanged as buyers and sellers have finished March negotiations, and April discussions were expected to start in earnest next week.

On an ex-tank Singapore basis, the Group I solvent neutral 150 was unchanged at $510/t-$530/t ex-tank Singapore, the SN500 was holding at $570/t-$590/t, and bright stock at $990/t-$1,010/t.

The Group II 150N cut was steady at $490/t-$510/t ex-tank Singapore, while the 500N was unchanged at $590/t-$610/t ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was assessed at $400/t-$430/t, the SN500 at $420/t-$440/t FOB, and bright stock at $870/t-$890/t FOB.

In the Group II category, the 150N cut was holding at $400/t-$430/t FOB Asia, while the 500N was heard at $515/t-$535/t FOB Asia.

In the Group III category, there were few discussions reported, with prices seeing little change. The 4 centiStoke and 6 cSt oils were heard at $850/t-$880/t FOB Asia, and the 8 cSt grade was holding at $600/t-$620/t FOB Asia.

It was heard that Group III suppliers were eager to achieve increases, given the higher crude oil prices, but buyers may be reluctant to accept steeper offers given ample availability of Group III in the region.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com

Lubes’n’Greases Publications shall not be liable for commercial decisions based on the contents of this report.

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