The base oil market was slowly coming back to life in Asia, following New Year’s celebrations, although activity in some countries such as Japan remained minimal on account of the extended holidays and the uncertainties surrounding supply and demand conditions.
Suppliers were bracing for many challenges as 2019 got underway, with lengthening supply and flat demand taking the front seat, coupled with feedstock volatility and geopolitical tensions.
Availability of most grades grew during the last couple of months of 2018, a condition that is fairly common at the end of any given year, but caused further concern this year as additional capacity was expected to come on stream in the first half of 2019.
Hengli Petrochemical Corp. announced last month the start-up of a refinery on Changxing Island that includes a Group II and III base oil plant. Hengli expects to sell product both in the domestic and export markets.
Hainan Handi Sunshine Petrochemical is in the midst of a Group II/III expansion of its base oil plant on Hainan Island, and anticipated the project to be completed early this year.
In Singapore, ExxonMobil is currently on track to expand production of its Group II EHC grades in Singapore. The expansion work started in 2017 and the expanded unit was expected to be commissioned in early 2019. This is in addition to a project to further expand Group II capacity in Singapore by 2023.
Additionally, ExxonMobil’s Group II plant in Rotterdam, the Netherlands, was also slated to start operations in the first quarter. The company will begin commercial production during the first quarter of two Group II cuts – EHC 50 and EHC 120–resulting in much less product moving to Europe from the producer’s plants in Singapore and the United States.
Indonesia and Thailand will likely continue to be targets for expanded business opportunities as the automotive and motorcycle segments in these countries were expected to see steady growth in the next five years, accompanied by a move towards higher quality lubricants.
In Indonesia, new emission standards are being introduced, with the European Union’s Euro 4 standards for passenger cars and commercial vehicles expected to be enforced by 2021. This will impact demand levels and the type of base oils that will grab the most attention as more high- performance base stocks will be needed for the new formulations.
India was expected to continue importing heavily as well, as demand currently outstrips local production and this situation was likely to continue in the next few years as there are no new plant projects in the country for the time being. Group II supplies from Singapore and Group II/III oils from South Korea, which dominated the market over the last few years, are being partly displaced by Middle East product, which is offered at competitive prices.
Looking forward, participants expected a slight pick-up in trading ahead of the Lunar New Year holidays, which fall in early February this year. The Chinese New Year and Spring Festival officially begin on Feb. 5, and end on Feb. 19.
Some of the activity in January and early February may be connected to restocking ahead of the celebrations, but the levels may largely depend on whether buyers expect prices to move up or down after the holidays.
Participants in China were also keeping an eye on the potential rise in marine transportation costs, as the government is preparing to implement new fuel regulations at ports, and this was expected to result in increased freight rates as ship operators will likely incur higher expenses to meet the new fuel standards.
In July 2018, China’s Ministry of Transport announced changes to the countrys existing marine fuel regulations. According to the new rules, the emission control areas (ECAs) would be extended along Chinas entire coastline as of 2019. Chinas regulations limit the sulfur content of fuel ships while operating in the ECAs to 0.5 percent.
The sulfur content limit is expected to be applied to vessels sailing within 12 nautical miles of the coast, in addition to just berthing. The announcement also proposed tightening of the sulfur specification to less than 0.1 percent as of 2020, although this regulation was expected to be reviewed later. The sulfur regulation is similar to that applied in European ECAs.
As far as base oil spot prices were concerned, values were exposed to downward pressure given current market conditions, but assessments were left unchanged from a week ago as there was a lack of reported transactions.
Ex-tank Singapore prices for Group I solvent neutral 150 were holding at $750 per metric ton to $770/t, while SN500 was heard at $770/t-$800/t. Bright stock was unchanged at $880/t-$900/t, all ex-tank Singapore.
Group II 150 neutral was assessed at $780/t-$810/t and 500N was steady at $790/t-$810/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed at $690/t-$710/t, while SN500 was holding at $680/t-$700/t. Bright stock was steady at $810/t-$830/t, FOB Asia.
Group II 150N was near $660/t-$680/t FOB Asia, while the 500N and 600N cuts were gauged at $700/t-$720/t, FOB Asia.
In the Group III segment, the 4 centiStoke grade was steady at $850-$870/t and 6 cSt was at $860/t-$880/t. The 8 cSt grade was unchanged from last week at $710/t-$740/t, FOB Asia.
Upstream, crude oil prices were somewhat erratic during the week, but bounced back on Thursday after an early slide, supported by a weaker dollar and signs of output cuts by Saudi Arabia.
Saudi Arabia, together with other producers led by Russia, agreed last year to trim output starting from January on worries about surging output.
Libyas oil exports have also been suspended as bad weather conditions forced the OPEC country to shut all its export terminals, according to a Reuters report.
At the same time, tech giant Apple trimmed its sales forecast, citing an economic slowdown in China, which fueled concerns about a slowing global economy and weaker prospects for oil demand.
On Jan. 3, Brent March futures were trading at $54.54/bbl on the London-based ICE Futures Europe exchange, up from $53.33/bbl on Dec. 27.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.