A more balanced supply and demand scenario appeared to be gradually developing in Asia, but a few base oil grades were still tight, keeping upward pressure on certain indications, although prices were generally steady. A turnaround in Taiwan in July may result in reduced API Group II supplies to regular destinations such as China.
While base oil production in China, one of the key markets within Asia, has risen over the last couple of years with the start-up of new plants and upgrades at older facilities, the country still suffered from a shortage of a number of grades, such as the heavy-viscosity cuts and bright stock.
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One of the factors that impacted availability of Group I base stocks in Asia was the recent turnarounds at Group I facilities in Singapore, Thailand and Japan. A large Japanese plant – Eneos‘ Wakayama unit – had also been shut down unexpectedly following a fire in late March, and this tightened supplies even further. Most of the plants have resumed production or are about to restart.
Buyers continued to look for availabilities at source locations such as Southeast Asia. A couple of Southeast Asian producers have regularly offered heavy grades and bright stock through tenders over the last few months. However, most of the offered product appeared to end up in the hands of Southeast Asian players, as pricing, logistics and freight rates worked in their favor.
Chinese buyers had been willing to up their bid levels in order to secure these parcels a couple of months ago, but they appeared less bold in recent weeks as they preferred to avoid getting cargoes at very high prices, only to find out later that prices have come down by the time they received their shipment.
There was a slight slowdown noticed in the region as coronavirus cases have surged in some countries such as Indonesia and the government has implemented “community activity restrictions,” which could damper economic growth.
In general, most participants have embraced the same cautious attitude as base oil facilities that were undergoing turnarounds have restarted for the most part and this reinforced the perception that supply would be improving. While there has been some improvement, the market was still not overflowing with product and as mentioned above, some of the heavier cuts and the API Group III grades were still difficult to locate. At the same time, demand in India and other nations appeared to be picking up.
Group II availability may tighten next month as Taiwanese producer Formosa Petrochemical embarks on a turnaround at its Group II plant that was anticipated to last almost two months. China typically receives large cargoes from Formosa and may see volumes decrease during the shutdown. Formosa has recently exported base oil cargoes to Southeast Asia and India as well.
Demand for Group III cuts has been healthy, while supply has dropped due to recent turnarounds in Asia, ongoing shutdowns in Europe and reduced supplies moving from the Middle East to Asia, given keen buying appetite within that region and other markets such as the United States.
Participants were keeping an eye on the U.S. market as it has been extremely tight and any unpredictable incidents such as a hurricane could push the delicate supply and demand balance over the edge, with reverberations likely to be felt in other regions as well. Such was the case in 2017 when several base oil plants along the U.S. Gulf Coast were forced to shut down due to damages incurred during Hurricane Harvey. At that time, product from Asia and Europe was shipped to fill the supply gap in the U.S., and regular buyers of U.S. product such as India suffered from the shortfall as well.
India has shown a small improvement in terms of buying activity over the last week, as COVID-19 vaccination campaigns ramped up and lockdown restrictions were lifted, leading to increased mobility and transportation and higher demand for fuels and lubricants.
Blenders in India were heard to be preparing for a pick-up in lubricant demand, similar to the one seen after the first coronavirus wave subsided in June 2020. Some were still holding robust base oil inventories and others relied on term shipments, but a good number of buyers were expected to enter the spot market in coming weeks. However, their buying indications were heard to be below those levels currently prevalent in sources such as Southeast Asia. Several South Korean cargoes were also expected to be shipped to India in coming weeks, particularly of light grades.
Spot base oil prices in Asia were stable to firm, with the Group III cuts undergoing upward adjustments due to strained supplies. 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 week on week. The Group I solvent neutral 150 grade was heard at $960/t-$990/t, and the SN500 was holding at $1,540-$1,580/t. Bright stock was unchanged at $1,870/t-$1,910/t, all ex-tank Singapore.
The Group II 150 neutral was holding at $1,000/t-$1,040/t and the 500N at $1,450/t-$1,490/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $840/t-$880/t, and the SN500 was holding at $1,510/t-$1,550/t. Bright stock was stable at $1,810/t-1,850/t, FOB Asia.
Group II 150N was holding at $840/t-$880/t FOB Asia, while the 500N and 600N cuts were also steady at $1,290/t-$1,330/t, FOB Asia.
In the Group III segment, prices were assessed higher due to tight availability and fresh demand. The 4 centiStoke was up by $20/t at $1,380-$1,420/t and the 6 cSt was also higher by $20/t at $1,390/t-$1,430/t. The 8 cSt grade edged up by $20/t as well to $1,320-1,360/t, FOB Asia for fully approved product.
Upstream, crude oil futures steadied on Thursday, hovering near their highest levels in almost three years, propped by a drawdown in U.S. inventories and accelerating economic activity in some countries such as Germany, following the lifting of coronavirus restrictions. Values also received some support from uncertainties that the U.S. would be able to reach a nuclear deal with Iran and lift sanctions on its crude exports.
On June 24, Brent August futures were trading at $75.40 per barrel, from $73.10/bbl on June 17 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $72.28/bbl on the CME on June 23, from $70.22/bbl on June 16 (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.