Despite uncertainties clouding prospects for the base oils industry, given the ongoing effects of the coronavirus pandemic and socio-political tensions in various countries of the region, the market showed healthy activity levels during the week.
There was an ongoing dispute between China and India over territories along the mountainous border that separates both countries. However, on Wednesday, India released a Chinese soldier that had been detained by a border patrol, signaling “an easing of tensions that at times this summer had threatened to descend into a broader conflict,” The New York Times reported.
In Thailand, pro-democracy protests and a government-imposed emergency decree in Bangkok brought much of the city to a halt.
At the same time, Thailand also welcomed a group of 39 Chinese tourists, the first to arrive in the nation in more than six months. Thailand had received more than 10 million tourists from China last year, but it closed its borders to tourists to contain the virus in April.
The pandemic has devastated the tourist industry in Thailand, causing an enormous hit to the country’s economic well-being. The lack of tourists has not only impaired the hotel and recreation industry, but also ravaged the transportation and airline businesses. Thailand is one of the largest lubricant consumers in Southeast Asia.
In China, a key participant on the base oils arena, buying interest for base stock imports has strengthened given a tightening of domestic and regional supply, in particular of the heavy-viscosity grades. Prices for these cuts have therefore climbed in China, and this has allowed Chinese buyers to attract product into their realm that would otherwise have gone to other bidders. For example, it was heard that a number of Thai API Group I bright stock cargoes had moved to China instead of other Southeast Asian destinations in recent weeks.
Thai suppliers were expected to start negotiations for November cargoes this week, but were holding off on making offers on expectations that prices would continue to climb.
India is another crucial market for the industry, and base oil and lubricant demand appeared to have recovered from its sharp drop during the height of the pandemic and associated lockdowns in the second quarter. However, while the number of coronavirus cases seemed to be going down in India, there were doubts whether current fast testing methods were effective, and an increase in infections could negatively impact downstream segments such as industrial and transportation lubricants if new restrictions were to be imposed.
Base oil prices in India have risen steadily since August, but the pace of the increases seemed to have slowed as more product becomes available in the region. Taiwanese producer Formosa Petrochemical and South Korean producer S-Oil have both brought their plants back on line, following routine turnarounds, and this was anticipated to allow for more spot barrels to come to market. However, S-Oil has been striving to cover contract and domestic commitments this month and was heard to have almost no spot availability.
There was also more availability from Middle East producers and several offers were heard to have been made into India.
At the same time, tight spot supplies from the United States, where most base oil plants had been running at reduced rates and some were forced to shut down temporarily due to hurricanes, limited the options available to importers of Group II grades. India has received a large number of cargoes from the U.S. during the last few months, starting in July, but a lack of spot cargoes has left many buyers scrambling to locate product from other origins, particularly for the light-viscosity grades.
According to reports, a major producer based in Singapore communicated a price increase for its ex-tank offers that was slated to go into effect on October 19; this would be the third upward adjustment in slightly over a month. The producer’s Group I and II light-viscosity grades were expected to be increased by $40 per metric ton, while its Group I and II heavy-viscosity grades and bright stock would be raised by $60/t.
The said producer’s Group I plant in Singapore was heard to remain shut down since June, and no restart date had been disclosed. This was one of the reasons for the increased buying interest for base stocks from other Southeast Asian producers such as Thailand. Several cargoes from the producer’s plants in the U.S. and Europe were heard to have made their way to Singapore to supply feedstocks for the producer’s lubricant operations and meet contract obligations.
A couple of Japanese plants were also scheduled for turnarounds this quarter, which also curbed spot supplies from that country. As a result of all these factors, spot supplies tightened considerably in Asia and prices continued to be exposed to upward pressure.
Spot base oil prices in Asia were therefore assessed stable to firm this week, with ex-tank Singapore figures moving up to reflect the latest indications from a key supplier.
Ex-tank assessments for the Group I solvent neutral 150 grade edged up by $20/t to $540/t-$580/t. The SN500 jumped by $30/t at $660/t-$700/t. Bright stock edged up by $10-15/t to $730/t-$770/t, all ex-tank Singapore this week.
The Group II 150 neutral was higher by $10/t at $540/t-$580/t, and the 500N also edged up by $10/t to $680/t-$710/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 climbed by $20/t to $450/t-$480/t, and the SN500 jumped by $30/t to $580/t-$620/t. Bright stock was higher by $10/t at $660/t-700/t, FOB Asia due to tight conditions.
Group II 150N was inched up by $10/t to $500/t-$540/t FOB Asia, while the 500N and 600N cuts were also higher by $10/t at $580/t-$620/t, FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt were assessed higher by $10/t at $710-$750/t and $730/t-$770/t, respectively. The 8 cSt grade was holding at $670-690/t, FOB Asia for fully approved product.
Upstream, crude oil futures slipped on Wednesday on reports of a smaller draw in U.S. crude oil inventories than predicted and expectations that crude demand would suffer at the hands of a second wave of worldwide coronavirus infections, but prices jumped on Thursday on news that a new economic stimulus package was imminent in the U.S.
On Thursday, October 22, Brent December futures were trading at $42.46 per barrel on the London-based ICE Futures Europe exchange, from $42.19/bbl on Oct. 15.
Dubai front month crude oil (Platts) financial futures settled at $41.88/bbl on the CME on Oct. 21, from $42.84/bbl on Oct. 14.
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.