The upswing seen at the beginning of the month seems to be slowing down as buyers have replenished base oil inventories, and uncertainties related to new COVID-19 infection spikes have dampened buying interest. Nevertheless, spot prices were assessed stable to firm as some pockets of the market were still tight and offers were adjusted up accordingly.
The month of June had presented a very optimistic picture as most countries started to emerge from coronavirus-related lockdowns and businesses and manufacturing had reopened.
However, a new wave of infections in several countries, including those that had managed to control the infection rates such as South Korea and Japan, and the rampant spread of the virus in others, have sown the seeds of renewed concerns about a market recovery, as demand for fuels and lubricants appeared to be losing steam once again.
Base oil supply had started to show signs of tightness in late May and June as end-users had returned to trading in order to secure fresh product, given that inventories had been worked down in the previous months. This coincided with a sharp drop in refinery run rates in the region, with South Korean, Japanese and Singaporean base oil units running at reduced rates since the first quarter.
Japanese base oil plants continued to be run at trimmed operating rates this month, falling to close to 60 percent in some cases – the lowest rates in years. Regional plants typically average 80 percent run rates or slightly higher.
The possibility of steeper pricing had also driven buyers to the market in late May and June in hopes of beating potential price hikes fueled by rising crude oil and feedstock prices. Base oil increases were indeed widely implemented throughout the region in the months of June and July.
While sellers were still trying to implement price hikes this month, there was more buyer resistance to the higher levels, and values for certain grades, such as the light viscosity cuts, were said to have stabilized over the last couple of weeks.
China had also reentered the import market as there was a dearth of domestic product to fill the country’s base oil needs, as lockdowns and plant shutdowns were lifted and the manufacturing and automotive sector experienced a revival in May-June.
However, the pace of the recovery in China started to decelerate, while increased operating rates at domestic base oil plants allowed suppliers to start rebuilding stocks. The base oil cuts that appeared less available were heavy-viscosity grades and bright stock, with supplies from other regions described as snug as well.
Aside from the pandemic, China has been dealing with severe weather and flooding in some heavy industry areas such as Shandong. The ongoing trade tensions between China and the United States were also expected to have an impact on Chinese economic performance this year.
The prolonged shutdown at a major API Group I plant in Singapore was also thought to be causing regional base stock tightness, according to sources. Singapore’s economic wellbeing has been adversely affected by the COVID-19 pandemic, but a recently approved economic stimulus package was anticipated to help reverse the trend during the second half of the year.
Another major source of base oils for China is Taiwan. The Taiwanese producer Formosa Petrochemical Corp. was heard to have started a routine turnaround at its Group II plant in Mai-Liao in early July, and was anticipated to bring the plant back on stream in mid-August. While the producer continued to meet certain contract obligations during the outage, there were no offers of spot volumes.
Enter the scene the South Korean producers, who had plentiful availability and were therefore able to fill the gap in supply during Formosa’s turnaround. A record number of South Korean cargoes were heard to have been shipped during June to China in anticipation of snug conditions, but this impetus seems to be winding down as more product will be once again available from Taiwan when Formosa restarts its base oil plant. Additionally, a turnaround at a South Korean base oil unit, starting in mid-August, should tighten availability of spot cargoes at that origin.
Formosa’s plant restart was expected to take place as planned, despite a fire that broke out at the Mai-Liao refinery last week, which did not appear to have affected the base oil unit.
Another key market that players were watching closely was India. Large quantities of base oils were on their way from the United States, the Middle East and South Korea as buyers had started to seek product in late May, when prospects of a demand recovery were optimistic.
However, most product needs seemed to have been met for the time being, and manufacturing disruptions, together with a significant slowdown in the automotive segment caused by the ongoing pandemic, were anticipated to somewhat dampen demand moving forward. In the meantime, and faced with product shortages, Indian buyers had acquiesced to steeper offers for imports, as well as domestic barrels.
Spot prices in Asia were assessed as stable to firm this week, with the recent upturn in price levels having stalled for many grades on weakening demand against improved availability. However, some cuts were adjusted up to reflect current discussion levels.
Ex-tank Singapore assessments for the Group I solvent neutral 150 grade were steady at $490/t-$530/t this week, while the SN500 was assessed higher by $20/t at $550/t-$580/t. Bright stock was higher by $10/t at $665/t-$695/t, all ex-tank Singapore.
The Group II 150 neutral was stable at $500/t-$520/t and the 500N was revised up by $20/t at $620/t-$650/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was heard at $420/t-$440/t, and the SN500 at $440/t-$480/t. Bright stock was assessed up by $10/t at $540/t-570/t, FOB Asia.
Group II 150N was steady at $440/t-$470/t FOB Asia, while the 500N and 600N cuts edged up by $10/t at $520/t-$560/t, FOB Asia.
In the Group III segment, the 4 centiStoke was steady at $680-$720/t and the 6cSt at $690/t-$730/t. The 8 cSt grade was heard at $670-690/t, FOB Asia for fully approved product.
Upstream, crude oil futures were trading lower during the day on Thursday, erasing earlier gains on reports of a surprise rise in U.S. crude oil reserves, while the spread of the coronavirus continued to dampen global fuel consumption.
On Thursday, July 23, Brent September futures were trading at $43.30 per barrel on the London-based ICE Futures Europe exchange, slightly up from $43.28/bbl on July 16.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
Lubes’n’Greases shall not be liable for commercial decisions based on the contents of this report.
Historic and current base oil pricing data are available for purchase in Excel format.