Despite its typical summer slowdown in demand, the Asian base oil market is seeing conditions tighten in the API Group I segment due to planned and unplanned supply disruptions.
One of the unplanned outages is the shutdown of the Integrated Refinery Petrochemical Complex base oil plant in Rayong, Thailand, which was heard to have been taken off-line after a fire broke out at the refinery on June 9.
The fire started at the refinerys vacuum gas oil hydrotreater, and, although it was extinguished fairly rapidly, damage from the fire has affected feedstock production for base oils, sources said. The unit is likely to be off-line for repairs for approximately three months, although this could not be directly confirmed with the producer.
IRPCs base oil unit can produce 320,000 metric tons per year of Group I oils, and buyers were heard to be looking for alternative sources of product. A Northeast Asian supplier said it had received some inquiries last week for spot cargoes from Southeast Asian consumers who are not regular customers.
Asian suppliers were also keeping a close eye on developments in the Middle East, as Islamic State of Iraq and the Levant (ISIS) insurgents occupied Iraqs largest oil refinery in Baiji on June 18, resulting in the shutdown of the refinery and its affiliated base oil plant, according to sources. The refinery accounts for more than a quarter of the country's entire refining capacity, and the base oil plant can produce approximately 130,000 t/y of Group I oils.
Some Middle East buyers were expected to turn to Asian suppliers for additional tonnage because of the outage, but there were no clear signals yet whether this would be the case.
In terms of planned turnarounds, maintenance programs at JX Nippon Oil and Energys plants in Mizushima, Japan, were also expected to take significant Group I volumes out of the supply system. JX Nippon Oil was understood to have shut down its larger, 250,000 t/y unit from late May for an extended turnaround that could last up to 90 days, while the smaller, 170,000 t/y line, was also taken off-line in May and is scheduled for a month-long turnaround, according to sources.
The Japanese producer focuses on the fulfillment of domestic base oil demand, and was understood to have built inventories to cover most of its contractual commitments.
Availability of Group II oils was said to be better than for their Group I counterparts in Asia, and this was thwarting efforts by suppliers to achieve price increases on the back of escalating production costs.
Demand has been particularly lackluster in China, a supplier said, with domestic prices moving down and exerting pressure on potential imports. Requirements from the various finished lubricants segments traditionally start to tail off in June, sources said, and this year has been no exception.
Furthermore, the restart of a number of Group II plants in China was expected to result in additional product coming into the market in coming weeks.
Sources mentioned that Sinopecs Gaoqiao unit in Shanghai, which has a capacity of 300,000 t/y of Group II base oils, was expected to be restarted in mid-June - after being shut down since early this year because of a feedstock shortage - but a restart date could not be confirmed. Panjin Northern Asphalt was also expected to restart its 400,000 t/y Group II plant in Liaoning some time in June, following a turnaround.
Sources also said that additional Group II capacity would be entering the supply system in late 2014, while some Group I capacity will be taken out of the market. Sinopec was anticipated to start up a new 200,000 t/y Group II base oil plant in Nanjing in late 2014, sources said.
At the same time, CPC-Shell was expected to shut down its Group I base oils plant permanently in October, according to sources, ahead of the scheduled decommissioning of the entire CPC Corps Kaohsiung refinery in December 2015. The downstream lubricants blending plant was expected to be idled in February 2015. CPC-Shell customers were expected to be forced to secure base stock from producers in Thailand, Japan and other sources.
CPC-Shells 120,000 t/y Group I low-vis production line, which manufactures SN150, was shut down in June last year for a routine turnaround of the companys base oil production facilities and has not been restarted due to economic reasons. CPC also operates a 130,000-ton per year high-viscosity SN500 and bright stock line at the same location. The producer restarted its high-vis train in July 2013 after completing the maintenance program and the line is running full out.
The CPC Kaohsiung refinery, which has the capacity to process 270,000 barrels per day of crude oil, will be mothballed in 2015 to fulfill a promise made to local residents about 20 years ago. The company promised to close the refinery due to growing concerns about the environmental impact of its operations, but obtained the consent to build a new ethylene plant at the site.
As far as base oil pricing in Asia is concerned, some suppliers were pinning their hopes of seeing an improvement on a major Singapore refiners initiative to lift its Group I and II light-viscosity grades on June 26. According to sources, the producer will be raising its ex-tank Singapore list prices for its Group I solvent neutral 150 and Group II 150 neutral by U.S. $20/t.
The spot price assessments for the Asian market have undergone some revisions this week to better reflect current bid and offer levels, as well as concluded business.
On an ex-tank Singapore basis, Group I SN150 moved up by $20/t to $1,080-$1,120/t. SN500 oils were unchanged at $1,080-$1,130/t, and bright stock hovered at $1,190-$1,250/t.
On an FOB Asia basis, Group I SN150 was assessed at $950-$980/t FOB. SN500 was assessed slightly lower by $10-20/t at $1,030-$1,050/t FOB and bright stock was mentioned at $1,190-$1,220/t FOB.
Group II 150 neutral was heard at $1,010-$1,050/t FOB Asia, while 500N was steady at $1,050-$1,080/t FOB Asia.
In the Group III segment, 4 centiStoke and 6 cSt oils were steady at $1,030-$1,080/t FOB Asia, and the 8 cSt grade at $1,020-$1,050/t FOB Asia.
On the shipping front, a few inquiries were keeping operators and brokers busy, with a 1,000-ton cargo being discussed for Hong Kong to North China for end of June to early July shipment.
In South Korea, a 1,000-ton lot of two base oil grades was on the table for Yeosu to Ho Chi Minh, Vietnam, for July 1-10 lifting, and a 2,000-ton parcel of 600N was being worked on for Yeosu to Nantong, China for June 25-29 shipment. A 1,000-ton cargo of bright stock was likely to be shipped from Negishi, Japan, to Merak, Indonesia, in the second half of July for delivery after August 14.
A 2,000-ton cargo was being discussed for Cilacap, Indonesia, to Nantong, China, while a second 4,000-ton lot was also in discussions for a similar route and shipment dates.
An interesting inquiry involving a 3,000-ton cargo was heard for Mailiao, Taiwan, to Brownsville, U.S., with shipment dates between July 1-10.
Upstream, August ICE Brent Singapore futures were trading at $115.28 per barrel in afternoon trading June 23, compared with July numbers at $112.87/bbl on June 17.