Improved supply levels and more prudent buying trends continued to exert downward pressure on Asian spot prices, although a number of base oil grades displayed fairly stable values given tighter availability. Base oil facilities in the United States came through Hurricane Ida and Tropical Storm Nicholas fairly unscathed, which brought a sigh of relief to many market participants who feared a repeat of the chaotic supply scenario caused by Hurricane Harvey in August 2017.
While a number of U.S. producers along the predicted path of Tropical Storm Nicholas had implemented disaster preparedness measures ahead of the storm that swept over Texas and Louisiana on Sept. 14, most facilities were running well a couple of days after the storm. Some buyers were still feeling the impact on logistics and transportation of Hurricane Ida, which had made landfall in Louisiana only about two weeks before Nicholas.
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Ida had triggered a massive power outage, which impeded the normal operations of ports and terminals along the Louisiana and Mississippi coast. This was understood to be causing delivery delays of shipments moving to the U.S. from origins such as South Korea and the Middle East—in particular, of API Group III imports. As a result, many lubricant plants were experiencing a shortage of raw materials for synthetic lubricant production, which was exacerbated by a dearth in additives and other chemicals caused by output disruptions at several manufacturing plants.
Meanwhile, in Asia, participants were also keeping an eye on Typhoon Chanthu, which drenched Taiwan with heavy rain on Sunday as the storm swept over the island’s east coast before heading for Shanghai, China, and turning east towards South Korea and Japan. Dozens of flights were cancelled in Taiwan and China because of the storm. Taiwan’s Central Weather Bureau had forecast that the typhoon was likely to keep away from Taiwan’s semiconductor factories on its West Coast, which manufacture the chips found in everything from smartphones to cars. A shortage of automotive chips caused by pandemic-related supply disruptions was already causing issues at car manufacturing facilities and new vehicle shortages all over the world. The Pacific typhoon season typically lasts from May till October.
In China, base oil activity was said to be steady, but buying interest for imports remained lackluster, with consumers focusing on meeting requirements through domestic supplies, or by working down existing inventories. China typically imports large amounts of base oils from Singapore, Taiwan, South Korea, Japan, Southeast Asia and the Middle East. Volumes from all of these origins have gradually dropped since the second quarter, with Taiwanese imports in particular impacted by a two-month turnaround at Formosa Petrochemical’s plant in Taiwan. Perhaps the only source that has upped its exports to China in recent weeks has been Japan, as Group I production there has increased, following several base oil plant turnarounds in the first half of the year.
Formosa usually exports close to 30,000 metric tons per month of Group II base oils to China, but a maintenance program at its Group II plant in Mailiao, which was unexpectedly extended due to a small fire when the plant was getting ready to be restarted last month, has nicked the producer’s export volumes over the last three months.
Availability of base oils from Southeast Asian producers has improved as well, since buying interest from within the area was dampened by pandemic-related restrictions and a seasonal slowdown. Earlier in the year, Chinese importers and Southeast Asian buyers had fiercely competed to secure cargoes of Thai and Indonesian origin, but this situation has abated as demand has weakened, more cargoes have become available and prices have softened.
Logistical issues were also plaguing the system as the Chinese government had ordered port closures and barred vessels from loading and discharging in order to control the spread of the Delta variant last month. This resulted in port congestion and a lack of containers and vessel space, not only within the region, but in other markets as well. Freight prices have also jumped in recent weeks.
Another key market, India, was showing steady demand for base oils as lubricant producers were preparing for the last manufacturing push before fourth quarter festivals and religious holidays. Several cargoes have been lined up to move from South Korea, the U.S., Europe and the Middle East. However, consumption was expected to be dampened by concerns about large gatherings and the potential spread of the coronavirus, just like in many other countries of the region.
South Korean exports continued to move steadily into India, with availability of product from South Korean producers having increased in the third quarter as most of them completed turnarounds earlier in the year. A rising number of South Korean cargoes were also lined up for the U.S. and Singapore.
The light grades enjoyed healthy demand and stable pricing in India, but the heavier grades have fallen victim to downward pressure on plentiful availability, mostly from Southeast Asia. Iranian supplies of Group I grades have also gained ground and prices were comparable to those from other origins.
Spot prices in Asia were generally assessed as stable to softer this week, depending on fundamentals. 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 stable to slightly lower, depending on buying interest and availability. The Group I solvent neutral 150 grade was steady at $850/t-$880/t, but the SN500 dropped by $50/t to $1,130/t-$1,170/t. Bright stock was down by $40/t at $1,580/t-$1,620/t, all ex-tank Singapore.
Prices for the Group II 150 neutral were holding at $850/t-$890/t, and the 500N edged down by $10/t to $1,330/t-$1,370/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $700/t-$740/t, but the SN500 was assessed down by $20 at $980/t-$1,020/t. Bright stock again fell by $50/t this week to $1,380/t-1,420/t, FOB Asia.
Group II 150N was unchanged at $710/t-$750/t FOB Asia, but the 500N and 600N cuts were down by $20/t at $1,140/t-$1,180/t, FOB Asia.
In the Group III segment, prices were fairly stable, supported by healthy demand and tight conditions. The 4 centiStoke was hovering at $1,420-$1,460/t and the 6 cSt was steady at $1,430/t-$1,470/t. The 8 cSt grade was slightly lower by $10/t at $1,350-1,390/t, FOB Asia, all for fully approved product.
Fluctuating crude oil prices added uncertainty to base oil price expectations. Oil futures slipped from a multi-week high on Thursday, as the threat to U.S. Gulf production from Hurricane Nicholas subsided. Energy companies were able to restore electricity quickly after the storm passed through Texas, while repairs of the damage caused weeks earlier by Hurricane Ida continued.
On September 16, Brent November futures were trading at $74.61per barrel on the London-based ICE Futures Europe exchange, from $73.13/bbl on Sep. 9.
Dubai front month crude oil (Platts) financial futures for October settled at $72.79/bbl on the CME on Sep. 15, from $69.86/bbl on Sep. 8 (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.