Base oil prices were generally softer this week in Asia, but conditions varied from segment to segment. Some of the heavy grades, which had seen vertiginous price jumps during the previous months, were showing more dramatic downward adjustments than their light-viscosity counterparts.
The sliding trend was particularly evident in the API Group I segment, which had been the tightest in terms of supply during the year, with some of the grades extremely difficult to locate and priced like rare gems. As a result, values had skyrocketed back then and were now experiencing significant corrections. In some cases, prices fell by $100 per metric ton week on week, because availability has lengthened with the return to production at Japanese and Southeast Asian plants, while demand has slumped.
A number of Group I cargoes were on offer from Southeast Asian suppliers. Since the number of cargoes on offer has increased in recent weeks, buyers’ price ideas have edged down.
It was heard that Chinese buyers had retreated from the market since there was more domestic availability, and this meant that there was less competition to acquire Group I material in the region. Additionally, newly imposed coronavirus restrictions were dampening activity in China.
The spread of the COVID-19 Delta variant and fresh pandemic-related measures were disrupting manufacturing operations and logistics across all of Asia, and led to lower demand levels of fuels, base oils and lubricants.
Buyers adopted a more cautious attitude as soon as the first intimations emerged that prices would start to soften, as end-users did not want to store costly product that would then lose value. Many were taking volumes under contract, but preferred to stay away from the spot market, where prices were more volatile.
Refineries had cut back operating rates at the start of the pandemic last year due to a deep drop in fuel consumption, and this had caused a rapid tightening of base oils given the lack of feedstocks. Most refiners increased run rates earlier this year—although they were still not running at full rates—allowing for supply levels to improve. This, together with the slowdown brought about by the increasing Delta variant infections and other seasonal factors, had resulted in additional base stocks coming to the market.
To keep prices from plunging, suppliers were on the lookout for opportunities to move the excess availability away from the region, and have found takers in Europe, the United States and Latin America, where supply of most grades was still strained and prices remained firm. There have also been transactions finalized to ship additional product to India.
A few light-vis South Korean cargoes were booked to the U.S., likely to be then shipped to Mexico to be used as fuel extender. A 9,000-metric ton base oils cargo was also being discussed for shipment from South Korea to the Caribbean. Chinese cargoes were heard to have been offered to South America and several Chinese parcels were also understood to have been concluded to Singapore over the last couple of months.
The Group II sector has experienced some tightening as a result of an ongoing turnaround at Taiwanese producer Formosa Petrochemical’s Group II unit in Mailiao. The plant was taken off-line for maintenance in early July and was not expected to restart until late August. It 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. However, due to the longer than usual turnaround this year, exports from Taiwan were heard to have dipped since June.
Group II availability had also been snug because of keen demand for Group I base oils earlier in the year. When buyers were unable to secure Group I grades and prices had taken off, many blenders resorted to using Group II base oils in those applications that allowed substitution. Naphthenic base oils had also been utilized to replace Group I bright stock when availability of this cut became problematic.
With the increased use of Group III base oils in automotive applications in response to stricter emission controls and fuel economy concerns, demand for these base stocks remained robust. Recent turnarounds of Group III plants in Asia and Europe exacerbated the strained supply and demand balance, catapulting prices to historical highs, but this segment was gradually regaining its bearings.
Spot prices in Asia were steady to soft this week, depending on bids and offers and product availability. 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 increased and demand weakened. The Group I solvent neutral 150 grade was down by $20/t at $890/t-$920/t, and the SN500 fell by $50/t to $1,370/t-$1,410/t. Bright stock was lower by $40/t at $1,760/t-$1,800/t, all ex-tank Singapore.
Prices for the Group II 150 neutral decreased by $10/t to $910/t-$950/t, and the 500N also moved down by $10/t to $1,400/t-$1,440/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 edged down by $20/t to $760/t-$800/t, but the SN500 plunged by $100/t to $1,250/t-$1,290/t. Bright stock also fell by $100/t to $1,580/t-1,620/t, FOB Asia.
Group II 150N dipped by $20/t to $770/t-$810/t FOB Asia, and the 500N and 600N cuts were also down by $20/t at $1,250/t-$1,290/t, FOB Asia.
In the Group III segment, prices were assessed stable. The 4 centiStoke was holding at $1,420-$1,460/t and the 6 cSt was steady at $1,430/t-$1,470/t. The 8 cSt grade was unchanged at $1,360-1,400/t, FOB Asia for fully approved product.
Upstream, crude oil futures fell again on Thursday, continuing a downward streak that started last week on investors’ concerns about the outlook for fuel demand as global COVID-19 cases surged, and more oil was expected to come to the market from OPEC producers and the U.S. There were also heightened worries about a slump in jet fuel consumption as several countries have re-introduced travel restrictions and airline business was down.
On Aug. 19, Brent October futures were trading at $66.13 per barrel on the London-based ICE Futures Europe exchange, from $71.47/bbl on Aug. 12.
Dubai front month crude oil (Platts) financial futures for August settled at $66.08/bbl on the CME on Aug. 18, from $69.02/bbl on Aug. 11 (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.