Asian base oil producers maintained a cautiously optimistic outlook, as higher feedstock costs and expectations of healthier demand in coming weeks were lending support to spot indications.
Spring is typically the time when production of finished lubricants picks up and demand for base oils increases, as evidenced by tightening supply of a number of grades.
Crude oil prices have also moved up in recent weeks, but fundamentals are still very unstable. While oil futures had been on an upward trend for most of the week, they fell about 3 percent on a U.S. Energy Information Administration report indicating that U.S. crude inventories had grown more than previously expected.
ICE Brent Singapore May futures ended the afternoon trading session at $40.64 per bbl on March 28, compared to $40.72 per bbl on March 21.
Base oil trading was somewhat sedated during the week due to the observance of Spring Equinox and Easter holidays in several countries of the region, but activity was expected to pick up as soon as April spot negotiations got underway.
On the supply side, the upcoming two-month turnaround at Formosa Petrochemicals’ API Group II plant in Mailiao, Taiwan, and recent shutdowns at a number of plants in China combined with heightened demand, have resulted in reduced spot availability of Group II oils.
However, a couple of facilities have recently resumed production, or are about to restart in the next few weeks.
In China, Sinopec Jingmen restarted its 100,000 metric ton per year Group II base oil plant in Hubei province in early March, and the 150,000 t/y Group II Sinopec facility in Nanjing resumed production in March as well.
Also in China, Hainan Handi Sunshine was heard to be poised to restart its 295,000 t/y Group II plant in Hainan province at the end of the month, but it may take a few weeks for the producer to rebuild inventories, sources said. The plant was taken offline in late February to coincide with a turnaround at Hainan Petrochemical, which supplies the feedstock for Hainan Handi’s base oil unit.
Hainan Handi was heard to have delayed the start-up of a new plant at its refinery on Hainans Yangpu Peninsula. Hainan Handis new Group II+/Group III plant was originally slated to come on stream this year and more than double Chinas domestic supply of those grades, but the project has been delayed to 2018-2019 due to market economics, according to industry observers. No confirmation could be obtained from the producer directly.
Asian base oil prices have remained on a steady course over the last couple of weeks, buyers and sellers agreed, despite a drive on the part of suppliers to improve margins by moving up offers.
On an ex-tank Singapore basis, the Group I solvent neutral 150 was heard at $510/t-$530/t ex-tank Singapore, the SN500 was steady at $570/t-$590/t, and bright stock at $990/t-$1,010/t.
The Group II 150 neutral cut was unchanged at $490/t-$510/t ex-tank Singapore, while the 500N was holding at $590/t-$610/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was gauged 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 steady at $515/t-$535/t FOB Asia.
In the Group III category, the 4 centiStoke and 6 cSt oils were unchanged at $850/t-$880/t FOB Asia, and the 8 cSt grade was holding at $600/t-$620/t FOB Asia.
In other market news, a number of Asian participants wondered if the change of ownership of U.S.-based Motiva Enterprises LLC announced last week by Royal Dutch Shell Plc. and Saudi Refining Inc. (SRI) would affect the company’s base oil operations.
Motiva is currently run as a 50-50 joint venture by the two energy giants, and is a major Group II player in the U.S., producing over 2 million t/y at its Port Arthur, Texas, base oil plant.
According to a letter of intent signed by SRI and Shell, SRI will retain the Motiva name, along with the joint ventures 600,000barrel per day refinery in Port Arthur and 26 distribution terminals.
Industry sources said that the split would probably bring about very few changes to Motivas base oil operations, but could alter the crude slate that the refinery runs on, and the way base oils are marketed, given that SRI also owns part of Luberef in Saudi Arabia and S-Oil in South Korea.
The expansion of the Luberef plant in Yanbual Bahr – which will add 700,000 t/y of Group II base oil and increased bright stock production – is close to being completed, with production expected to commence in the third quarter, according to market sources. Luberef, headquartered in Jeddah, is a 70-30 joint venture between SRI and Jadwa Industrial Investment Co.
Through its subsidiary AOC, SRI also has a 63.4 percent market share of South Korean refiner S-Oil. S-Oils Onsan, South Korea, refinery has capacity to make 26,000 t/y of Group I, 1,040,000 t/y of Group II, and 990,000 t/y of Group III base oil.
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.