The extreme supply and demand imbalance observed in the base oil market in Asia appeared to be abating as refineries restarted production or increased operating rates and more product became available, coinciding also with a decline in requirements. Some base stocks were still very tight, while others were plentiful, and this led to mixed trends in terms of pricing.
Demand in key markets India and China has weakened due to disparate reasons. In China, domestic supply has improved as refineries have increased production, while demand has seen a seasonal drop. The price of imports was higher than that of domestic supplies, so buyers preferred to meet their product requirements through locally-sourced material whenever possible. This was not an option for all grades, as China continues to be structurally short on some of the heavy-viscosity grades and bright stock. As a result, importers were still on the lookout for the heavier cuts from regional sources such as Southeast Asian and Japanese suppliers. A couple of cargoes were heard to have been finalized from Singapore to Chinese ports for early June lifting. However, some of the targeted prices for imports were deemed too steep, dampening business.
Additional production was expected to come on line in China in the second half of the year, fueling speculation that the country would be starting to export more base oils in the future. China has so far been a net importer of base oils, but the government has offered encouragement to local producers to increase output and help the country become more independent in terms of base oil supplies. If supply outpaces domestic demand, producers will be in a position to export the surplus. At least one API Group II cargo was heard to have already been earmarked for export in July.
In India, manufacturing operations and transportation have been thwarted by recent lockdowns due to the critical spike in coronavirus infections. As some of these restrictions begin to be lifted, demand for fuels and lubricants was expected to strengthen. India had imported several cargoes in previous weeks and this, together with the local supply, was deemed fairly sufficient to cover product needs. Shipments from distant origins such as the United States have decreased, but movements of product from South Korea and Taiwan have multiplied because of improved supply levels from producers in those countries and more workable prices. Due to the slowdown in uptake from India, some Asian suppliers of Group II base oils were redirecting shipments to other destinations such as Europe and the Middle East.
Taiwanese supply will likely fall next month as the sole Group II producer in the country, Formosa Petrochemical, was expected to embark on a routine turnaround. The supplier was heard to be building inventories to cover requirements during the outage, but reduced spot availability was likely.
At least two South Korean Group II and Group III producers were heard to have increased refinery run rates and were able to ship spot cargoes to several destinations in Asia and the U.S. One of the suppliers was understood to have concluded June business into Japan, Indonesia and Vietnam.
A third producer was reported to have completed a turnaround which started in April, and this should help improve product availability in Northeast Asia, although the producer was still trying to build inventories. A second producer was heard to have extended its turnaround until the end of June, from an original restart date in late May. There was no confirmation forthcoming about the status of the shutdown.
Group I supply from Japan was also anticipated to show an uptick, as the Eneos refinery in Wakayama, Japan, that had been idle since March 29 due to a fire, was heard to have restarted production.
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 was expected to last six weeks, with a restart likely to occur in late June.
A major Singapore-based refiner was heard to have placed customers on 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 the unplanned two-month outage at the Eneos refinery in Japan, where the producer sources Group I base stocks. The company did not comment on its operations.
Given the perception that supply levels were improving, buyers have adopted a more guarded attitude and preferred to delay purchases as long as possible in hopes that prices would start to weaken. A Thai sales tender of Group I base stocks therefore attracted lukewarm interest last week and was rumored to have closed at levels below previous transactions.
While some grades continued to exact very steep offers and actually edged up this week, other cuts have indeed stabilized and were starting to be exposed to downward pressure because of more plentiful availability. This was the case of some of the light grades.
Spot base oil prices in Asia were a mixed bag, mirroring the changing market conditions. Values were stable for some grades, softer for others and higher for a number of cuts. 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 were steady to lower week on week. The Group I solvent neutral 150 grade was holding at $970/t-$1,000/t, but the SN500 was lower by $20/t at $1,550-$1,590/t. Bright stock was hovering at $1,880/t-$1,920/t, all ex-tank Singapore.
The Group II 150 neutral was lower by $20/t at $1,030/t-$1,070/t, and the 500N was steady at $1,480/t-$1,520/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was holding at $840/t-$880/t, but the SN500 moved down by $10/t to $1,520/t-$1,560/t. Bright stock was assessed down by $20/t at $1,820/t-1,860/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, prices inched up due to tight availability and healthy demand from the automotive segment. The 4 centiStoke was assessed up by $20/t at $1,320-$1,360/t and the 6 cSt was higher by $10/t at $1,330/t-$1,370/t. The 8 cSt grade moved up by $20/t to $1,260-$1,300/t, FOB Asia for fully approved product.
Upstream, crude oil futures were trading at two-year highs as a result of optimistic prospects of increased demand in coming months because global new confirmed coronavirus cases and deaths were falling, thanks in large part to vaccination campaigns.
Top oil exporter Saudi Arabia has also raised the July official selling price of most crude grades it sells to Asia, India’s The Economic Times reported.
On June 3, Brent August futures were trading at $71.54 per barrel, from $68.56/bbl for July futures on May 27 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $68.69/bbl on the CME on June 2, from $66.64/bbl on May 26 (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.