After months of extremely tight supply conditions and continuous upward price adjustments, availability of certain base oils has started to improve, but the market remains generally snug. This has led to mixed trends in terms of pricing, with spot prices for some grades edging up, others stabilizing and a few softening.
Many refineries were running at reduced rates in Asia, after the precipitous drop in fuel demand caused by the pandemic last year. Some refineries have ramped up rates as refined product prices have improved and margins for base oils were better as well.
Additionally, several plants in South Korea and Japan had undergone planned turnarounds in the first and second quarter of the year, which tightened availability in the region further. A couple of unexpected shutdowns triggered by a fire and other incidents exacerbated the strained conditions.
The restart of a number of base oil plants in Asia, namely in South Korea and Japan, coincided with a dip in demand from countries where coronavirus infections have jumped and new restrictions have led to reduced industrial and business activity, the population’s mobility and a general sense of uncertainty.
Even China, which had started to recover from the first wave of the pandemic earlier than most countries last year was showing signs of slowing down. It was not clear whether the recent record rainfall and flooding in China’s Henan province would also have any impact on the country’s economy.
Domestic base oil prices have increased on the back of new government policies such as reduced crude oil import quotas and more stringent tax rules on certain refined products, which in turn may lead to heightened interest in imports if prices appear competitive and workable. There will likely be some appetite for API Group I bright stock cargoes offered through tenders by a Thai producer, as this is a grade that remains in high demand in China.
Chinese buyers had reduced the purchase of imported product in the last three months, particularly as product from Southeast Asia was snatched by Southeast Asian buyers and any other participants that acquiesced to the steep prices available at that time. Chinese buyers were faced with strong competition for these cargoes as Southeast Asian buyers’ proximity and other factors played to the advantage of the participants from within the area.
Nevertheless, Chinese importers were able to secure cargoes from Taiwan, South Korea, Singapore and the Middle East when other sources dried up. At the same time, a gradual increase in output from domestic plants in China allowed for a number of export shipments to Southeast Asia in recent weeks.
In India, there has been a revival of buying interest as the country emerges from lockdown measures and soaring infection rates. A number of buyers had secured hefty stocks before the most recent coronavirus wave affected activity in the country, and now are fairly set with the material at hand. Some were also relying on domestic supply, and preferred to stay away from the import offers being discussed as they were deemed too high. Many buyers expected prices to edge down as availability increases in the region.
Asia’s supply of some grades has improved, but the Group II segment was expected to remain snug due to the current turnaround at Formosa Petrochemical‘s Group II plant in Mailiao, Taiwan. The plant has a capacity of 600,000 metric tons per year of Group II base oils, according to Lubes’n’Greases’ Global Guide to Base Oil Refining. The producer was likely to continue covering most of its contractual commitments during the outage, but was heard to have suspended spot shipments, according to sources.
Other suppliers were also tight because they found takers of their products in other regions at the time when demand started showing signs of slowing in Asia. For instance, South Korean sellers were heard to have concluded business into Brownsville, at the U.S.-Mexico border and other destinations in South America.
Spot base oil prices of Group I and II grades were stable to softer, because numbers were exposed to pressure on lower bids and offers as availability has improved. At the same time, tight Group III supply given recent and ongoing turnarounds at Group III plants propelled numbers to higher levels. 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 steady at $950/t-$980/t, but the SN500 edged down by $20/t to $1,480/t-$1,520/t. Bright stock was also lower by $20/t at $1,830/t-$1,870/t, all ex-tank Singapore.
The Group II 150 neutral weakened by $20/t at $960/t-$1,000/t, while the 500N was holding $1,450/t-$1,490/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 edged down by $20/t to $810/t-$850/t, and the SN500 also fell by $20/t to $1,450/t-$1,490/t. Bright stock showed a heftier downward adjustment of $40/t to $1,730/t-1,770/t, FOB Asia. This grade was one of the fastest to rise in terms of pricing in previous months, and numbers were also falling much faster now.
Group II 150N was lower by $20/t at $820/t-$860/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 were assessed higher due to snug availability and fresh demand. The 4 centiStoke was up by $10/t at $1,420-$1,460/t and the 6 cSt was also higher by $10/t at $1,430/t-$1,470/t. The 8 cSt grade edged up by $10/t as well to $1,360-1,400/t, FOB Asia for fully approved product.
Upstream, crude oil futures edged up after falling earlier in the week as demand was expected to outpace supply in the second half of year given signs that the global economy was recovering from the effects of the coronavirus pandemic. U.S. crude inventories rose during the week, but were still falling at Cushing, Oklahoma, according to the U.S. Energy Information Administration.
On July 22, Brent September futures were trading at $73.62 per barrel on the London-based ICE Futures Europe exchange, from $73.99/bbl on July 15.
Dubai front month crude oil (Platts) financial futures for August settled at $69.65/bbl on the CME on July 21, from $71.92/bbl on July 14 (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.