Demand for spot cargoes has weakened in some countries in Asia, and there were signs that the tight supply situation had started to ease. Nevertheless, spot prices were still exposed to upward pressure as there were only a limited number of spot cargoes on offer, particularly of heavy viscosity grades, but pricing was generally more stable than about a month ago.
Buying in India and China has slowed down compared to the frenzied activity seen in March and April, when Indian and Chinese buyers vied with Southeast Asian consumers to secure product from within the region and appeared willing to pay any price to obtain the much-needed cargoes.
With a seasonal drop in demand in China and the coronavirus pandemic affecting mobility and manufacturing in India, buyers appeared to focus on using up existing inventories and have retreated somewhat from spot trading for the time being. As a result, Asian suppliers that had been offering cargoes to these destinations were looking for opportunities in the Middle East and Europe as prices also appeared more workable. However, a shortage of containers and vessel space could complicate transactions, sources said.
Despite the fact that domestic plants have resumed or increased production, China was still short on heavy-vis grades and bright stock, with local prices climbing and importers on the lookout for opportunities to secure these products elsewhere.
A Southeast Asia supplier was expected to offer some heavy-vis material and bright stock through a tender this week. However, it was difficult to assess whether Chinese bids would be able to compete with higher price ideas from buyers in other countries. Chinese buyers appeared more amenable to paying steeper prices for API Group I grades than for Group II cuts, since the latter were more available from domestic producers. They also expected more Group I supply to become available from Japan as producers resumed production, following routine turnarounds and an unexpected outage.
Indian buying appetite has declined as the pandemic called for more lockdowns and restrictions, and demand for fuels and lubricants has slumped. A couple of light-vis base oil cargoes were expected to ship there from the United States in late May and June, but there was less interest to move product to Indian ports than a month ago and price ideas have also softened. A domestic base oil plant was heard to be off-line during upgrade work at the associated refinery, but this coincided with the decline in demand.
Some contract customers in Asia remained on allocation, reflecting that the market has not yet reached balanced supply and demand conditions.
There were reports that a major Singapore-based refiner was on 80% allocation for the months of June and July. It was not clear whether this was due to production issues at its base oil facilities in Singapore, or whether it was related to an unplanned two-month outage at a refinery in Japan where the producer sources Group I base stocks. The company did not comment on its operations. The producer was also heard to have lined up a base oils cargo for early June lifting from Rotterdam to Singapore – possibly an intra-company movement to help ease the supply tightness there, according to sources.
The Eneos refinery in Wakayama, Japan, that had been idle since March 29 when a fire forced the producer to shut down, was heard to have been restarted. The Singapore producer sources Group I base oils at this facility. The same producer idled a Group I plant in Singapore in June 2020 and there were rumblings that it was getting ready to restart it, although this could not be confirmed.
Another Eneos Group I plant in Mizushima, Japan, remained off-line for an extended turnaround which started in mid-February and was not expected to be completed until mid-June. A third Eneos facility in Kainan was scheduled for a turnaround which started in early May and would last six weeks.
South Korean Group II and Group III supply was expected to gradually improve as a producer was reported to have completed a turnaround. A second producer appeared to have extended its turnaround until the end of June, from an original restart date in late May. The supplier was heard to be shipping a large base oils cargo from its joint-venture facilities in Indonesia to South Korea in mid-June, possibly to supplement its inventories, which were likely depleted during the turnaround.
A third South Korean producer who has not undertaken a turnaround in recent months was understood to have lined up cargoes to move to Japan, Indonesia and Vietnam in June.
The two producers that had not taken their plants off-line for turnarounds in South Korea were heard to be running plants full out and boosting export volumes. As more Group II cargoes become available, prices were less exposed to upward pressure and were in fact below those of some Group I grades which were more difficult to locate.
Spot base oil prices in Asia were stable to firm, with assessments for the Group III grades marginally moving up on account of tight supply and higher offers. The ranges portrayed below have been revised to reflect discussions, deals and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices showed no fluctuations week on week. The Group I solvent neutral 150 grade was holding at $970/t-$1,000/t. The SN500 was also unchanged at $1,570-$1,610/t. Bright stock inched up by $10/t to $1,880/t-$1,920/t, all ex-tank Singapore.
The Group II 150 neutral was unchanged at $1,050/t-$1,090/t, and the 500N was hovering at $1,480/t-$1,520/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $840/t-$880/t, and the SN500 was assessed at $1,530/t-$1,570/t. Bright stock was firm at $1,840/t-1,880/t, FOB Asia.
Group II 150N was holding at $840/t-$880/t FOB Asia, while the 500N and 600N cuts were steady at $1,290/t-$1,330/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed up by $20/t at $1,300-$1,340/t and the 6 cSt was higher by $10/t at $1,320/t-$1,360/t. The 8 cSt grade moved up by $10/t as well to $1,240-1,280/t, FOB Asia for fully approved product.
Upstream, crude oil futures climbed early in the week, but slipped on Thursday on concerns about the demand drop in India and a potential increase in Iranian supplies, dampening optimistic consumption prospects due to increased driving in U.S and Europe this summer after a gradual lifting of pandemic-related restrictions.
On Thursday, May 27, Brent July futures were trading at $68.56 per barrel, from $65.73/bbl on May 20 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $66.64/bbl on the CME on May 26, from $64.36/bbl on May 19 (CME note: Settlement prices on instruments without open interest or volume are provided for web users only and are not based on market activity.)
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.