For a few weeks, there had been expectations that base oil supply in Asia would start to lengthen as plant turnarounds were completed and refinery run rates were starting to ramp up on improved fuel demand. Buyers held off on purchasing fresh base stocks on expectations that prices might come under pressure on improved availability levels. However, prices have mostly stabilized following the steep weekly increases seen since the fourth quarter of 2020.
While some grades have seen a small downward adjustment, depending on the origin, producers were doing their best to keep values from falling as inventories were still lean. Firm crude oil and feedstock values were also lending support to base oil price indications. Crude oil futures were hovering close to three-year highs and there were expectations that a global demand recovery for crude oil and refined products would continue to prop up pricing.
Base oil supply was not growing as fast as expected, as some turnarounds had taken longer to complete than anticipated. Producers who have undertaken maintenance shutdowns were trying to build inventories and catch up on back orders, which led to a reduction of spot availability.
Both API Group I and Group II base oils remained tight, with the looming start of a turnaround at the Taiwanese Group II plant expected to exacerbate the situation. The plant was expected to be off line from early July through August. The supplier regularly ships significant amounts of base stocks to China under contract and for spot business, and there were expectations that shipments would be limited to term cargoes this month and be lower than usual. Fewer volumes were heard to have moved there in June already.
In any case, with most plants in China running at close to full rates, domestic supply of Group II was plentiful, but the heavier grades were still on the snug side.
Chinese buyers were also eager to secure Group I heavy-vis cuts and bright stock, which remained particularly tight in the region; however, they were less interested in acquiescing to the steep price levels being discussed. While a couple of Southeast Asian producers have regularly offered heavy grades and bright stock through tenders in the last few months, Chinese buyers were less inclined to secure these cargoes at the high prices they had been sold at a couple of months ago. Most of these cargoes went to Southeast Asian participants, who had the advantage of proximity and lower transportation costs.
Chinese players were also hoping that improved supply in Japan might help reestablish a more balanced Group I supply and demand scenario. They were also heard to have participated in a couple of tenders offered by Southeast Asian producers during the week, with some quantities of heavy grades and bright stock being booked for China.
Looking at the Group I segment in the long term, supply of these cuts was likely to see a decline as plant rationalizations continue, Michael Connolly, senior consultant, Global Refinery Team at ICIS, noted during a presentation at the virtual 14th ICIS Asia Base Oils and Lubricants Conference earlier this week.
Connolly said at least two production units were officially scheduled to be idled in Asia in 2022 – the Shell unit in Singapore and the Eneos plant in Negishi, Japan. While Group I base stocks are no longer used as widely in automotive applications, there are still many market segments that require them, particularly in many countries in Asia where manufacturing represents a robust segment of the economy.
Meanwhile in India – another key market within Asia – fuel and lubricants consumption appeared to be gradually recovering after the lifting of pandemic-related restrictions in most of the country. There was still concern about the spread of the Delta variant, but automotive sales have picked up and so have fuels and lubricants requirements. Monthly car sales had dropped by more than half in May, but levels were still better than when the pandemic first impacted the country last year. Most carmakers reported positive month-on-month as well as year-on-year sales growth in June, Timesnownews.com reported. “Maruti Suzuki, India’s largest carmaker, sold 124,280 passenger vehicles last month as opposed to 51,274 units in June 2020, marking a growth of 142.38 percent,” the online newsletter stated on July 1.
India’s domestic supply of base oils is growing, as local producers have upgraded plants and are planning new expansions. However, India is still highly dependent on imports. In years past, large quantities of Group II light grades would regularly be imported from the United States, especially during the second half of the year when domestic demand in the U.S. would weaken. However, given the extremely tight situation in that market, there have been fewer cargoes moving to India. Imports from regional producers have increased instead, with additional volumes heard to be moving from South Korea, Taiwan and Southeast Asian suppliers. Taiwanese imports were anticipated to slow down in July and August as the producer embarks on a turnaround.
Following disruptions to the supply chain and logistics caused by the pandemic, market observers expected to see companies starting to consider sources of raw materials and components located closer to home, instead of depending on distant origins. Suppliers were also likely to offer more storage and distribution options near their customers. Trading within the region was therefore expected to increase over the coming years.
Spot base oil prices in Asia were stable to slightly lower, with some indications edging down on lower bids and 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 were steady to softer week on week. The Group I solvent neutral 150 grade was lower by $10/t at $950/t-$980/t, and the SN500 edged down by $20/t to $1,520/t-$1,560/t. Bright stock was unchanged at $1,870/t-$1,910/t, all ex-tank Singapore.
The Group II 150 neutral fell by $20/t to $980/t-$1,020/t, while the 500N was holding $1,450/t-$1,490/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 inched down by $10/t to $830/t-$870/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 unchanged 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 $10/t at $1,390-$1,430/t and the 6 cSt was also higher by $10/t at $1,400/t-$1,440/t. The 8 cSt grade edged up by $10/t as well to $1,330-1,370/t, FOB Asia for fully approved product.
Upstream, crude oil futures jumped by close to 2% on Thursday on signs that OPEC+ producers could increase output more gradually than expected in the second half of the year, while rising global fuel demand was likely to result in a tightening of supplies. During the trading session, both West Texas Intermediate and Brent crude reached their highest level since October 2018.
On July 1, Brent September futures were trading at $75.84 per barrel, from $75.40/bbl for August futures on June 24 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures for July settled at $72.60/bbl on the CME on June 30, from $72.28/bbl on June 23 (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.