Asia Base Oil Price Report

With Saudi oil production being mostly restored following the recent drone attacks, concerns over feedstock shortages and price increases have largely abated in the Asian market.

Uncertainty over base oil price direction, however, resulted in a fairly subdued trading week, with the start of the National Day holidays in China, celebrated Oct. 1-7, and National Day in Taiwan on Oct. 10, further dampening buying activity.

While some participants expected appetite for base stocks to increase after the holidays, others anticipated demand to remain lackluster as there did not seem to be an end in sight for the United States-China trade dispute, which has resulted in a slowdown in many industrial segments.

Media reports described an improvement in the Asian manufacturing sector in September, but given that the trade tensions have not receded, prospects for the rest of the year remained unpredictable.

South Korean base oil producers attempted to increase prices, following the spikes in crude oil futures as a consequence of the attacks on Saudi crude oil production sites. However, participants said that the attempts have only been partially successful, and that certain segments of the market were resisting the hikes.

Such is the case of India, where the prolonged monsoon season resulted in weak base oil and lubricant demand. According to weather reports, the rainfall in India this year has been significantly above average and the season has lasted longer than in years past.

Sources commented that Indian API Group II base oil imports have been predominantly South Korean in recent weeks, given that prices from other origins, such as the U.S., were not considered to be workable.

Additionally, U.S. producers were heard to be meeting healthy demand at home and in South America and Europe, and have not been as active in the Indian market.

The absence of U.S. product in India is increasingly being filled by Group II from Saudi Arabia and occasionally by Group III from Middle East suppliers, a source explained. It makes for the odd situation of premium Middle Eastern Group III competing in price with South Korean Group II in that market, the source added. Suppliers have faced resistance to increase initiatives in India on account of the lukewarm demand and adequate availability of most grades.

It was unclear whether the U.S. $40 per metric ton increase reported to have been communicated by Singapore-based ExxonMobil on Group I and II contract prices into China would be implemented as expected on Oct. 4, as no corroboration could be obtained this week on account of the absence of Chinese players during the National Day holidays.

ExxonMobil was understood to have announced a similar increase on its domestic base oil prices in the U.S., but later rescinded the hike as crude prices retreated and market conditions were not as supportive of the mark-ups as expected.

Spot price assessments remained stable this week given the absence of numerous players and muted trading.

Ex-tank Singapore Group I prices for the solvent neutral 150 grade were assessed between $720/t-$740/t, while the SN500 was heard at $770/t-$790/t. Bright stock was holding at $840/t-$860/t, all ex-tank Singapore.

The Group II 150 neutral was stable at $750/t-$770/t, while the 500N was at $760/t-$780/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was unchanged at $600/t-$620/t, and the SN500 grade was steady at $560/t-$580/t. Bright stock was hovering at $740/t-$760/t, FOB Asia.

Group II 150N was heard at $570/t-$590/t FOB Asia, while the 500N and 600N cuts were assessed at $580/t-$600/t, FOB Asia.

In the Group III segment, the 4 centiStoke was steady at $790-$820/t and the 6 cSt at $810/t-$855/t. The 8 cSt grade was holding at $710/t-$740/t, FOB Asia for fully-approved product.

Upstream, crude oil futures eased on news that Saudi Arabias crude production was close to full capacity. Fears about a world-wide economic slowdown also placed downward pressure on values. Global manufacturing activity declined for the fifth consecutive month in September, the longest period of contraction since 2002, with automakers most notably posting double-digit percentage drops in car sales.

On Oct. 3, Brent December futures were trading at $57.71 per barrel on the London-based ICE Futures Europe exchange, compared to $62.19/bbl for November futures on Sep. 26.

In related industry news, Japanese car manufacturer Toyota is developing an assembly plant in Myanmar, in response to expectations of strong growth in the local market as the country looks to expand its manufacturing output, Oxford Business Group reported.

In late May, Toyota announced it would establish its first vehicle assembly plant in the country, in the Thilawa Special Economic Zone (SEZ) just outside of Yangon, and the project was expected to be completed in 2021. At present, Toyota exports approximately 2,000 passenger and commercial vehicles to Myanmar for sale through authorized dealerships.

Suzuki and Nissan from Japan, Hyundai and Kia from South Korea, and Ford from the U.S. already have a production or assembly presence in the country.

There has been a recent rise in car sales stemming from the government of Myanmars decision in 2016 to impose import restrictions on second-hand vehicles, and then in 2017 to offer tax incentives for companies that assemble vehicles locally.

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

LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.