Logistical issues, port congestion and energy supply shortages continued to affect the supply chain in Asia, forcing some manufacturing operations to either lower production rates or stop output altogether. In terms of lubricant manufacturing, a shortage of certain chemicals and additives also had repercussions on production levels, while a lack of automotive chips was impacting car manufacturing in many countries.
In China, a coal shortage has caused power plants to reduce production, and numerous factories have had to cut output rates due to a lack of energy. Manufacturers that supply materials to companies such as Apple and Tesla have halted production due to the power deficiency, media outlets reported.
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China was not the only major Asian economy dealing with an energy crunch, as India was also teetering on the edge of a power crisis. “Most of India’s coal-fired power plants have critically low levels of coal inventory at a time when the economy is picking up and fueling electricity demand,” CNBC.com reported. A combination of factors affecting coal supply such as the monsoon season and falling coal imports led to the current crisis.
India’s economic recovery from the COVID-19 pandemic was being led by industrial activity instead of services, experts noted, and a lack of energy would be devastating to the manufacturing sector. Demand for industrial lubricants was therefore likely to be impacted by a slowdown in manufacturing activity.
As a result of the supply chain obstructions, many chemicals and additives have not only gone up in value, but they have become move difficult to obtain, while imports have seen delays because of transportation disruptions and longer delivery times. This has impacted many blenders around the world, who were also feeling a slump in lubricants demand from the automotive segment as a number of car plants have shut down or were producing fewer vehicles.
Lubricant facilities in some regions have also been affected by a lack of a number of base stocks, although this situation has improved in Asia as more product has become available over the last few weeks. Availability of the API Group I cuts has improved significantly in Asia, which has also placed downward pressure on spot pricing.
One of the main producers of Group I base oils in Asia is Japan. The Japanese lubricant and grease producers have not been impacted by base oil shortages, but a few manufacturers have been unable to meet demand because of a lack of certain additives, according to sources. Despite the fact that domestic lubricant consumption has weakened, production continues to thrive. Sources said that Japanese lubricant production had grown by an estimated 10% year on year, and that robust exports had offset declining domestic demand.
In terms of prices, Eneos, the Japanese producer that communicates base oil benchmark values, has increased its fourth quarter prices by ¥9.3 (U.S. 8 cents) per liter, based on the price of imported crude oil (from end of May to mid August) to Yen ¥100.96/liter for the Group I 150 grade. South Korean suppliers’ prices for transactions into Japan were slightly higher. A large Singapore producer has slashed prices of exports by over $150 per metric ton since August, sources said.
Base oil exports from South Korea to other Asian nations and the United States have also been fairly steady and have picked up compared to the first half of the year, when a number of plant maintenance programs were completed and availability had decreased.
There has been particularly strong interest in Group III cargoes, as supply from Europe had dwindled in the third quarter due to turnarounds in that region. Many countries were starting to impose stricter fuel economy and emission control standards and required lubricants formulated with high-performance base oils.
Taiwan was also anticipated to up its export volumes this month, following the completion of an extended turnaround at Formosa Petrochemical’s Group II unit in Mailiao. The restart of the plant had been delayed by a small fire right about the time that the unit was expected to restart production in late August. The plant was heard to have resumed production in late September. Formosa exports a large portion of its production to China.
However, it was unclear whether Chinese buyers would be seeking many imports as base oil demand in China has slowed down, and most of the requirements were being fulfilled with domestic product. The slowdown was partly attributed to a seasonal pattern and to the restrictions that the Chinese government had imposed to eradicate COVID-19 infections. These restrictions have also ensued in port congestion, since vessels were not allowed to load or discharge, among other logistical problems. As a result, international base oil producers had preferred to abstain from shipping material to China during the month of September.
The improved base oil supply levels observed in Asia, together with a slump in demand continued to exert downward pressure on spot pricing, although most base oil ranges have stabilized. Participants were also keeping an eye on crude oil and feedstock prices as they have embarked on an upward trek. The spot ranges portrayed below have been revised to reflect bids and offers, deals and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were steady to lower this week. The Group I solvent neutral 150 grade was unchanged at $820/t-$850/t, but the SN500 moved down by $10/t to $1,060/t-$1,110/t. Bright stock edged down by $20/t to $1,360/t-$1,400/t, all ex-tank Singapore.
Prices for the Group II 150 neutral were holding at $840/t-$880/t, but the 500N was adjusted down by $10/t to $1,300/t-$1,340/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $680/t-$720/t, and the SN500 was down by $10/t at $920/t-$960/t. Bright stock fell by $10/t this week to $1,250/t-1,290/t, FOB Asia.
Group II 150N was unchanged at $710/t-$750/t FOB Asia, and the 500N and 600N cuts were holding at $1,100/t-$1,140/t, FOB Asia.
In the Group III segment, prices were stable, supported by healthy demand and snug supply. 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 holding at $1,340-$1,380/t, FOB Asia, all for fully approved product.
Crude oil futures climbed by about 1% on Thursday after the International Energy Agency predicted that record natural gas prices would foster demand for oil, while the OPEC+ plans to stick with its output levels over the next few weeks. A drop in U.S. crude and fuel stocks also boosted oil prices.
On Oct. 14, Brent December futures were trading at $84.20 per barrel on the London-based ICE Futures Europe exchange, from $80.03/bbl on Oct. 7.
Dubai front month crude oil (Platts) financial futures for November settled at $80.10/bbl on the CME on Oct. 13, from $77.81/bbl on Oct. 6 (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.