Overall business was described as steady, as many players were returning to business following the holidays. Suppliers kept a positive outlook for the coming days, as activity is expected to tick up before slowing again ahead of the Lunar New Year holidays in mid-February.
Buyers in China were in the process of securing cargoes ahead of the upcoming interstice, and several parcels were expected to arrive in the country over the next couple of weeks, including API Group II/III cargoes from a producer in the United Arab Emirates.
While specific price levels for these parcels were not disclosed, sources said numbers were competitive. Likewise, the same producer was heard to be shipping significant volumes to India.
Market observers reiterated that Middle Eastern Group III suppliers were likely to gain market share in Asia in 2018 as prices are often very attractive compared to Group II and III options in the region, given a recent increase in Group III capacity.
While demand for Group I grades may continue to contract, requirements for Group II and III base oils are expected to experience moderate growth over the next five years, with trade patterns between regions also showing significant changes.
In China, several projects were being discussed for new and expanded Group II and III base oil plants, although instead of production remaining in the hands of state-run companies, some independent producers would become more involved.
Nevertheless, market sources also expected demand for Group I base oils to remain fairly healthy in China over the next few years, and production of these grades to continue.
During the last few weeks of 2017, Group I grades in particular gathered some attention in Asia as lubricant manufacturers were able to use them in certain applications to replace some of the Group II grades, which were in tight supply.
The snug conditions were the result of unexpected plant outages on the U.S. Gulf Coast caused by hurricanes Harvey and Nate during the second half of the year, together with a few Asian plants suffering production setbacks because of catalyst issues, a lack of feedstocks due to turnarounds at upstream units, and routine maintenance programs.
While the United States typically exports large amounts of Group II oils to Asia, in September and October, several Asian spot cargoes made their way to the U.S. instead, to cover the shortfall caused by the unplanned shutdowns, exacerbating the spot supply shortage in Asia.
Tight fundamentals in the U.S., together with climbing crude oil numbers, drove most U.S. producers – both on the paraffinic and naphthenic side – to implement posted price hikes during the week, lending a slight impetus to steeper ideas in Asia as well.
In the first few weeks of 2018, Asian market conditions were still anticipated to remain strained, but participants believed supply levels would improve in February as buying interest slows down during the Lunar New Year holidays.
A number of routine maintenance shutdowns scheduled for the second and third quarters in Asia could also create a dent in local supplies moving forward.
In South Korea, SK Lubricants has scheduled a turnaround at its base oil plant in Ulsan in March. The unit can produce 701,000 metric tons per year of Group II and 1.27 million t/y of Group III base oils, according to LubesnGreases Global Guide to Base Oil Refining.
In Taiwan, Formosa Petrochemical Corp. was anticipated to take its Group II unit in Mai-Liao off-line for a one-month turnaround in July. The base oil plant has a capacity of 600,000 metric tons per year.
Asia producers kept an anxious eye on crude oil prices, as numbers continued to trend up, and exerted upward pressure on base oil spot indications. Most base oil spot discussions were taking place at higher price levels, driven by the hefty crude oil values and snug supply.
Group I SN150 was up by $10/t at $710/t-$730/t ex-tank Singapore, while the SN500 grade was also up by $10/t at $820/t-$840/t. Bright stock was unchanged at $910/t-$930/t ex-tank.
Group II 150 neutral was assessed up by $10/t at $720/t-$740/t, and 500N was also up by $10/t at $890/t-$910/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $630/t-$650/t, and the SN500 grade edged up by $10/t to $740/t-$760/t, FOB Asia.
Bright stock was holding at $810/t-$840/t, following an upward revision last week.
Group II 150N was unchanged at $640/t-$660/t, and the 500N/600N grades were assessed up by $10/t at $780/t-$820/t, all FOB Asia.
In the Group III segment, 4 centiStoke and 6 cSt grades were also revised up by $10/t to $790/t-$810/t, and the 8 cSt was also up by $10/t to $770/t-$790/t, FOB Asia.
Upstream, crude oil futures leapt to three-year highs, with Brent crude surpassing the $70 per barrel mark for the first time since December 2014 on Thursday.
Healthy global demand against extended production quotas by OPEC and Russia, together with geopolitical tensions in several areas were said to be pushing prices up.
Brent crude futures were trading on the London-based ICE Futures Europe exchange at $69.76 per barrel on Thursday, Jan. 11 – after briefly touching $70.05 per barrel – compared to $67.96 per barrel on Jan. 4.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.