Asia Base Oil Price Report

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A seasonal slowdown and an increasing number of coronavirus infections, driven by the Delta variant, were acting as a damper to base oil and lubricants consumption in Asia during the week. This, in turn, placed downward pressure on a number of base oil grades, particularly those that had already started to show a lengthening in supplies.

With several countries in the region observing summer holidays, activity was slightly subdued, although base oil demand was described as healthy by a majority of suppliers.

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Despite the steady requirements, the return to production of plants that had been undergoing turnarounds in previous months has brought improved availability of most grades. In some cases, if there was extra supply that seemed to be outpacing regional requirements, suppliers targeted the export market. Several parcels of South Korean light grades, for example, have been shipped to the United States, and were then expected to move on to Mexico. Some of these parcels were slated to arrive this month and some in September; they were heard to have already been sold.

API Group I supplies have increased in Asia thanks to the resumption of operations and the ramping up of run rates at Southeast Asian and Japanese base oil plants.

In Japan, demand may be partly affected by the Obon or traditional summer holidays celebrated on Aug. 13-16, but participants said that buying interest in base oils and lubricants remained stable, with “no signs of slowing down, even despite the coronavirus,” a market participant said. Sources also observed that international oil companies had seen a robust increase in earnings in the second quarter, largely due to contributions from the lubricants sector.  

In the third quarter, the benchmark price of the 150N cut edged up in Japan by Japanese Yen 18.3 per liter, to ¥91.66/liter, reflecting the rise in crude prices, which are used by the largest producer, Eneos, in a formula to calculate base oil prices that includes a “cocktail” of feedstock values. Base oil prices were also expected to experience upward pressure in the fourth quarter due to the recent highs in crude futures, although oil prices have softened over the last couple of weeks.

The Group II category was expected to remain snug for some time as a large plant in Asia was undergoing a turnaround. Formosa Petrochemical’s Group II unit in Mailiao, Taiwan, was heard to have shut down for maintenance in early July and was not expected to restart until late August. The plant has capacity to produce 600,000 metric tons per year of API Group II grades (according to Lubes’n’Greases’ Guide to Global Base Oil Refining) and typically supplies base oils not only to the domestic market, but also to China, India and other destinations in the region.

The Group III segment was also fairly tight still, but the return to production of several Group III plants, mainly in South Korea, but also in Europe was gradually allowing for the segment to become more balanced. Prices were therefore less exposed to upward pressure and were deemed stable.

In general, market conditions were more favorable than a year ago, when

Asia had started to experience a shortage of base oils as coronavirus restrictions had started to be relaxed, economic activity picked up and refineries were still running at reduced rates. This had rapidly led to a severe tightening of supplies and skyrocketing base oil pricing.

Demand had particularly been strong in China in the second half of 2020, as the country recovered earlier than other nations from the lockdowns caused by the pandemic, and by the third quarter, manufacturing activity had reached higher levels than the previous year. This had spurred keen buying interest for base oils and an increase in import volumes. Chinese buyers were forced to compete for Southeast Asian cargoes with buyers in that area, and they often were unable to accept the high offers due to lower domestic prices.

At the moment, however, Southeast Asian buyers have retreated as demand in many countries has softened due to coronavirus-related restrictions. While many cargoes had also moved to Singapore late last year and early this year, that trend seems to have petered out, with more Japanese shipments moving to Singapore and a shrinking need to secure cargoes from Thailand and Indonesia. This is when Chinese buyers jumped back into the market to secure Southeast Asian Group I cargoes. Some parcels were heard to have been sold to India as well.

In India, base oil and lubricant requirements had also picked up in July and August 2020 as there had been expectations that the worst of the pandemic was over. As a result, buyers had entered the market en masse and the rising demand had driven prices up. By contrast, in August this year, the spread of the Delta variant has dampened demand as buyers have turned cautious and were striving to meet requirements through contract volumes and existing inventories.

There was also increased availability of cargoes from Europe and the U.S. While U.S. producers had been unable to offer export cargoes because the domestic market had been extremely tight throughout most of the year, a lengthening of supply has allowed for light-viscosity grade shipments to India. There was also a cargo of light grades concluded from Spain to India. The improved availability levels resulted in lower bids and offers coming to the trading table.

Spot prices for Group I and Group II grades in Asia were generally softer week on week, while Group III values were stable. 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 lower as supply improved and demand weakened. The Group I solvent neutral 150 grade was down by $10/t at $910/t-$940/t, and the SN500 fell by $40/t to $1,420/t-$1,460/t. Bright stock was lower by $10/t at $1,800/t-$1,840/t, all ex-tank Singapore.

Prices for the Group II 150 neutral decreased by $10/t to $920/t-$960/t, and the 500N also edged down by $10/t to $1,410/t-$1,450/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 edged down by $20/t to $780/t-$820/t, and the SN500 fell by $50/t to $1,350/t-$1,390/t. Bright stock edged down by $20/t to $1,680/t-1,720/t, FOB Asia.

Group II 150N dipped by $30/t to $790/t-$830/t FOB Asia, and the 500N and 600N cuts were down by $20/t at $1,270/t-$1,310/t, FOB Asia.

In the Group III segment, prices were largely stable. The 4 centiStoke was holding at $1,420-$1,460/t and the 6 cSt was assessed at $1,430/t-$1,470/t. The 8 cSt grade was hovering at $1,360-1,400/t, FOB Asia for fully approved product.

Upstream, crude oil futures were steady on Thursday, following two days of gains, after U.S. President Biden urged OPEC+ producers to boost output to help lower gasoline prices and support a global economic recovery.

On August 12, Brent October futures were trading at $71.47 per barrel on the London-based ICE Futures Europe exchange, from $70.87/bbl on Aug. 5.

Dubai front month crude oil (Platts) financial futures for August settled at $69.02/bbl on the CME on Aug. 11, from $67.74/bbl on Aug. 4 (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.

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