Activity in the Asian base oil market was sluggish, as many buyers opted for utilizing existing inventories instead of procuring fresh cargoes as the year draws to a close, while producers appeared reluctant to grant further downward price adjustments.
Base oil values have been exposed to downward pressure in the last few weeks due to the drop in demand for most grades against a lengthening supply scenario.
According to market players, the segment that appears the most exposed to downward price pressure is the API Group II market, as supply is more than adequate to cover requirements. This could be exacerbated by the return to full production of a number of Northeast Asian base oil plants, which had reduced operating rates a couple of months ago to produce more fuels. However, the fall of fuel prices has prompted producers to increase base oil output once again.
At least one South Korean producer was heard to have lifted its base oil operating rates, and other refiners in Korea and Taiwan were anticipated to gradually increase rates over the next few weeks.
Group I prices have also softened, but perhaps not to the same extent as Group II cuts given that some cuts were less readily available and demand has remained fairly steady. However, pressure on Group I prices may mount as regional refiners were likely to increase operating rates as well.
Group III values have been comparatively stable throughout the year, sources said, although competition between Northeast Asian producers and Middle East suppliers to capture market share continues.
Lower crude oil and feedstock prices added to the general price pressure, but producers explained that many of the base stock cargoes that were being shipped now had been manufactured when oil prices were still very high. Margins continued to be squeezed despite the drops in raw material values, they noted.
Crude oil futures for the United States benchmark West Texas Intermediate dipped briefly to below $50 per barrel and Brent fell to levels below $60/bbl on Thursday, but recovered following reports that Russia might be willing to cut oil production. Concerns about oversupply have driven prices down since early October, when WTI values had hit a four-year high above $76/bbl.
On Thursday, Nov. 29, Brent January futures were trading at $59.42 per barrel on the London-based ICE Futures Europe exchange, down from $62.60/bbl on Nov. 22.
In China, base oil importers were careful about the quantities they purchase as they prefer to finish the year with minimum inventories, although a couple of deals were discussed during the week.
A 7,000-8,000 metric ton cargo of Group III oils from the Middle East was heard fixed to China for December loading.
Another import cargo of Group II cuts was talked about during the week, but eventually the transaction was reported to have failed.
In terms of spot pricing in Asia, values were assessed as stable to softer, with few transactions reported. There were rumblings that a refiner had lowered its ex-tank Singapore indications this week. However, this could not be confirmed by press time.
Ex-tank Singapore prices for Group I solvent neutral 150 were heard at $760 per metric ton to $780/t, and the SN500 cut was revised down by $10/t at $790/t-$810/t. Bright stock was hovering at $880/t-$900/t, all ex-tank Singapore.
Group II 150 neutral was hovering at $780/t-$810/t and the 500N was adjusted down by $10/t to reflect discussions near $800/t-$820/t, all ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was heard at $690/t-$710/t, while the SN500 was revised down by $40/t to $700/t-$720/t to reflect published prices widely regarded as benchmarks. Bright stock was steady at $810/t-$830/t FOB Asia.
Group II 150N moved down by $20/t to $680/t-$700/t FOB Asia, while the 500/600N were down by $20/t at $710/t-$730/t FOB Asia.
In the Group III segment, the 4 centiStoke grade was holding at $860-$880/t, and the 6 cSt was assessed at $870/t-$890/t. The 8 cSt was unchanged at $720/t-$750/t, FOB Asia.
A number of Asian participants were attending the ICIS Pan-American Base Oils and Lubricants conference in Jersey City, United States, Nov. 28-30. Discussions centered on base oil capacity over the next twenty years, regulatory updates, and "finding solutions to changing industry demands."
Many experts agreed that in China, the accelerating growth of electric vehicle usage will be one of the main disruptors to the traditional lubricants industry. The growing adoption of EVs is partly fueled by the implementation of more stringent environmental regulations in the country.
This trend was expected to impact the base oil and lubricant markets serving the passenger car motor oil segment the most in the next few years, as the electrification of heavy duty vehicles is at least 10 years behind that of the PCMO segment, noted Kevin O'Bryant, base oil business manager for Shell Lubricants, during a conference presentation.
Many lubricant companies are already investing huge amounts in the development of new lubricants to meet the changing needs of the market.
"In 20 years, we will still have lubes to sell, but they will be different - we will have to up our game," O'Bryant explained.
What is driving the changes in the automotive sector is the push for fuel efficiency and lower emissions, and this seems to be a shared objective on a global scale. However, regulatory issues are different in each region.
Martin Birze, regional business manager, PCMO, Lubrizol, who also spoke at the conference, explained that it is very difficult and complex to come up with one standard that will apply to all the regions. This makes the development of new additives and lubricants that can address each of these regional standards more complicated and costly.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.