Asia Base Oil Price Report

Activity was relatively subdued in the Asian base oil market due to a lack of readily available spot cargoes and several holidays celebrated during the week in Japan, South Korea and other countries in the region.

Trading is also expected to remain muffled next week as many industry participants gather at the ICIS Asian Base Oils and Lubricants Conference in Singapore on May 16-18.

With several base oil plants having been off-line in recent weeks, and others having just started turnarounds, the availability of certain grades has been limited in Asia. The tightness has been compounded by heightened requirements during the spring season.

However, as production is gradually resuming and demand starts to decline, supply levels are expected to improve.

As the market tightness observed over the last several months begins to ease, spot prices are also anticipated to be less exposed to upward pressure.

Spot prices have been edging up since early in the year, but less vigorous requirements, together with slipping crude oil and feedstock costs, are likely to lift some of the price pressure.

Crude oil futures have softened, registering one of their worst weeks in several months. West Texas Intermediate dropped below U.S. $45 per barrel on May 5 - its lowest level since last August - as U.S. production continues to grow and Iran seems intent on increasing production.

On the other hand, Saudi Arabias Oil Minister Khalid al-Falih said at the Asia Oil and Gas Conference that opened in Malaysia on May 8 that the production cuts implemented by OPEC since the beginning of the year could be extended for more than six months, helping reduce the global oil overhang.

ICE Brent Singapore July futures settled at $49.48 per barrel on May 8, compared to $51.74/bbl on May 1.

In Taiwan, API Group II producer Formosa Petrochemical was heard to be increasing the base oil volumes exported to China during the month of May compared to previous months.

The supplier had been forced to cut back shipments to China because of tight conditions that had been lingering since the third quarter of last year, when the producer took its plant in Mailiao off-line for a turnaround.

While Formosa had been striving to meet all of its contractual obligations, and had made domestic requirements its priority, it had limited the amount of product that was exported on a spot basis.

However, given the slight slowdown in regional demand and high operating rates at the plant, the supplier was heard to be once again in a position to be able to export additional spot cargoes.

A majority of base oil market participants still report fairly tight market conditions, with spot volumes for certain grades deemed limited.

Availability of Group II base oils, in particular, seems to be scarce because a number of Group II plants have undergone turnarounds, not only in Asia, but also in the United States.

U.S. producers typically ship spot cargoes to India and China, but shipments have been restricted over the last couple of months due to low inventories and healthy domestic demand.

It was difficult to predict when the supply/demand balance would improve in Asia, as some plants were expected to restart production, but other units were poised to be taken off-line for maintenance.

In South Korea, GS Caltex was scheduled to resume operations at its Group II/III plant in Yeosu at the end of April, although no confirmation could be obtained on whether the unit had been restarted. GS Caltex shut down its plant in March for a turnaround that lasted slightly over a month. The plant has capacity to produce 1,151,000 metric tons per year of Group II base oils and 146,000 t/y of Group III oils, according toLubesnGreasesGuide to Global Base Oil Refining.

Also in South Korea, SK Lubricants will be starting a three-week turnaround at its Group II/III plant in Ulsan next month. The unit has capacity of 701,000 t/y Group II and 1.3 million t/y Group III base oils.

The tight supply situation has helped maintain base oil spot prices at stable levels this week, despite a weakening in feedstock values, with most indications showing no fluctuations from the previous week.

On an ex-tank Singapore basis, the Group I solvent neutral 150 was assessed unchanged at $700/t-$720/t, the SN500 at $840/t-$860/t, and bright stock at $960/t-$980/t ex-tank Singapore.

Group II 150 neutral was hovering at $710/t-$730/t ex-tank Singapore, and the 500N was heard at $910/t-$930/t ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was steady at $570/t-$590/t, and the SN500 was assessed at $770/t-$790/t FOB. Bright stock was unchanged at $810/t-$830/t FOB, following a downward adjustment last week.

Group II base oils were steady at $630/t-$650/t FOB Asia for the 150N and at $830/t-$850/t FOB Asia for the 500N/600N.

In the Group III segment, the 4 centiStoke and 6 cSt oils were stable at $770/t-$790/t, and the 8 cSt at $740/t-$760/t, all FOB Asia.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

LNG Publishing shall not be liable for commercial decisions based on the contents of this report.