Many countries in Asia have started to relax pandemic-related restrictions and have given up their zero-COVID policies as they slowly rolled out vaccination campaigns, encouraging increased mobility of the population and regional tourism. However, base oils and lubricants consumption continued to be impacted by lackluster economic activity, along with automotive plant shutdowns triggered by a lack of semiconductors for new car production. This was the result of supply chain disruptions in the early days of the pandemic which were ongoing even today.
In China, where demand during the months leading to the end of the year tends to pick up, base oil requirements were rather muted. This situation was partly attributed to COVID-19-related lockdowns and transportation issues, as the government had imposed strict rules for rail traffic and had banned vessels from docking at certain ports to stall the spread of the Delta variant. Most lubricant manufacturers focused on using domestic base oils instead of relying on imports during this period.
Nevertheless, there was some appetite for API Group II base oils that went unfulfilled in China, and the fact that the turnaround at Formosa Petrochemical‘s Group II plant in Taiwan has been extended from its original restart date in late August, resulted in a tight supply scenario for Group II grades.
Formosa is an important source of Group II base stocks for China, but a small fire at the Mailiao unit just when it was ready to be restarted prolonged the outage. There were reports that the unit may now not resume production until October. Adding salt to the wound, there were also fewer cargoes shipped from South Korea to China over the last three months, as buying interest for imported product had been subdued. A number of Group II plants in China were also rumored to have extended their current turnarounds.
By comparison, availability of Group I grades has become more abundant in the region, with prices exposed to more significant downward pressure. Group I producers in Southeast Asia have accepted lower prices because they were eager to find a home for their cargoes before pricing eroded further. The price drops in this segment were more pronounced than in the Group II segment because prices had jumped into the stratosphere during the first half of the year, when Group I supply was severely strained, and therefore faced a much steeper way down.
Bright stock remained in high demand, but availability has lengthened, leading to softer pricing. Given that this grade is complex to replace in certain applications, many buyers had panicked when cargoes were difficult to obtain earlier in the year, and had been willing to pay sky-high prices for any Group I molecules that came to the market. This appears to be less the case at the moment, with supply considered to be ample to cover current demand.
Even China – which is typically not an active participant in the export market – had been able to place several Group I heavy-viscosity cargoes into Southeast Asia during the third quarter, but these transactions were less likely now because prices did not seem workable.
Several light-grade Group I cargoes have moved to India instead, as demand there remained steady, and more shipments were expected in late September and October. Buyers were taking advantage of the drops in spot prices in the region to supplement their term cargoes with spot supplies.
While India had in the past been one of the main destinations for surplus Group II supplies from the United States, the strained market fundamentals there, together with recent supply and logistical disruptions caused by two hurricanes have curtailed the possibility of export shipments moving to India in the short term. A number of U.S. cargoes had been booked before the storms, and these arrived in India in August and September, but were unlikely to be repeated in coming months. A good number of South Korean and Middle East cargoes have been concluded into India as well. Taiwanese shipments will be unavailable until Formosa is able to restart its plant.
In terms of Group I supplies, Iranian cargoes have reappeared on the Indian scene and have filled the gaps left by a lack of supply from other sources.
Indian importers were dealing with the consequences of a lack of vessel space and containers in Asia caused by the restrictions in China. With fewer vessels moving on certain routes and containers not moving in and out of China as scheduled, there was a backup of shipments that affected other countries in the region, not to mention the steep increase in freight rates as well. Southeast Asian producers of palm oil were also requiring more vessel space during the high demand season prompted by religious festivals in many nations.
Interestingly, there were reports of large amounts of Group III cargoes moving from South Korea to India in August, which was likely in response to healthy demand for premium base oil grades from the automotive lubricant segment.
In general, there was a sense that supplies were sufficient to cover current requirements in India, particularly in the case of the heavy grades, and this allowed buyers to breathe more easily than in the first half of the year, when supplies of all grades were more challenging to secure.
Spot prices in Asia were assessed as stable to softer this week, depending on fundamentals for each grade. 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 edged down by $10/t to $1,120/t-$1,160/t. Bright stock was down by $50/t at $1,530/t-$1,570/t, all ex-tank Singapore.
Prices for the Group II 150 neutral were holding at $850/t-$890/t, and the 500N was also steady at $1,330/t-$1,370/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged from the previous week at $700/t-$740/t, but the SN500 was assessed down by $10 at $970/t-$1,010/t. Bright stock again fell by $50/t this week to $1,330/t-1,370/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 $1,120/t-$1,160/t, FOB Asia.
In the Group III segment, prices were stable and still hovering at steep levels compared to earlier in the year, 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 $1,340-1,380/t, FOB Asia, all for fully approved product.
Crude oil futures were higher in early morning trade in Asia on Sep. 23 amid supply constraints and a significant draw in U.S. crude stocks, which fell to their lowest levels since October 2018 given outages caused by severe weather on the U.S. Gulf Coast.
On Sept. 23, Brent November futures were trading at $76.09 per barrel on the London-based ICE Futures Europe exchange, from $74.61/bbl on Sep. 16.
Dubai front month crude oil (Platts) financial futures for October settled at $73.37/bbl on the CME on Sep. 22, from $72.79/bbl on Sep. 15 (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.