Trading was somewhat subdued, with buyers taking a wait-and-see position and suppliers cautious as production costs remain high and demand prospects appear uncertain.
Numerous participants were also absent from trading as they attended the June 24-26 ICIS Base Oils conference in Singapore.
Most discussions at the conference seemed to center on concerns about a potential API Group II and III oversupply situation on the back of recent and upcoming capacity additions.
Furthermore, a slowdown of the Chinese economy — with the countrys yearly gross domestic product (GDP) hovering around 7 percent, compared to 9 percent before 2012 — was also seen as a factor that could affect the base oils sector in coming months.
Several suppliers agreed that base oil demand in China has not been as strong as expected, but a few conceded that this did not come as a complete surprise, since requirements tend to weaken as the market slows into summer, only to pick up again around September.
Another market that was described as having lost steam was Thailand, which has been affected by socio-political unrest and unstable manufacturing operations over the last several months.
Also in Thailand, it was heard that Integrated Refinery Petrochemical Complex (IRPC) in Rayong had been able to resume production at its base oils unit after a fire damaged part of the refinerys vacuum gas oil (VGO) hydrotreater on June 9. Sources said that a couple of base oil shipments had been completed by the producer this week, but whether this was achieved with product that was in storage could not be corroborated.
Meanwhile, many participants underscored that Group II and III oils are likely to see increased demand over the next few years because of the steady growth of passenger car sales in several Asian nations such as China and India, alongside the implementation of stricter fuel economy and emissions controls.
In China, vehicle sales totaled 45 million units in 2013, with over 18 million passenger cars sold, representing a 16 percent growth over 2012, explained Wang Aijun, General Manager of Copton, during a presentation at the ICIS conference.
There are growing concerns about how such a staggering increase would affect the environment. To address this, the Chinese government plans to implement a National IV emissions standard as of January 1, 2015, which will accelerate lubricant upgrades and require the use of higher performance lubricants, Mr. Wang added. These standards were introduced for passenger cars in 2011, and in 2012 for commercial vehicles in the countrys most populous cities.
The lubricant oil consumption from the automotive segment totaled 4.1 million tons in 2013, out of a total of 7.7 million tons yearly lubricant consumption in China, noted Jeanne Huang, Engagement Manager at Kline & Company, who was also speaking at the conference. The industrial lube consumption accounts for the remaining 3.6 million tons, Huang added.
Several industry participants also noted that another common concern among Asian car manufacturers is the need to improve fuel efficiency, which will likely drive a demand increase of low-viscosity lubricants.
On an ex-tank Singapore basis, Group I solvent neutral 150 was assessed at $1,080-$1,120/t. SN500 oils were unchanged at $1,080-$1,130/t, and bright stock edged up by $20/t to $1,210-$1,270/t.
On an FOB Asia basis, Group I SN150 was assessed up by $20-40/t at $990-$1000/t FOB. SN500 softened by $20/t to $1,010-$1,030/t FOB. Bright stock prices for export were being discussed at slightly lower levels than last week, although demand for this cut remains healthy, with a downward adjustment of $30/t resulting in prices at $1,160-$1,190/t FOB.
Group II 150 neutral was heard at $1,020-$1,050/t FOB Asia, up by $10/t at the low end of the range, while 500N dropped by $20/t to $1,030-$1,060/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.
In terms of shipping, a number of small vessels serving the Asian region will be retired in in 2016-2017, because they are more than 20 years old, while fewer new vessels below 19,000 deadweight (dwt) are being commissioned, explained Jordi Maymi, Shipbroker at SSY Chemicals Singapore at the ICIS conference. This is partly because few shipping companies are covering capital repayments amid falling profits, and most newbuild orders are for 19,000-30,000 dwt stainless steel tankers purchased by certain investors for their asset value, Maymi added.
A number of base oil freight inquiries emerged this week, with quite a few involving shipments from Japan. A 2,000-metric ton cargo of SN500 was being discussed from Wakayama to Singapore for second-half July lifting. A similar 2,000-ton lot was quoted from Wakayama to Mumbai for 2H July shipment. A 1,000-ton lot of bright stock was on the table from Negishi to Merak, Indonesia, for second-half July lifting and delivery after August 14. A 3,000-4,000-ton cargo was mentioned for Kainan to Singapore for July 10-18 shipment.
Additionally, a 1,000-ton cargo was expected to be shipped from Hong Kong to North China at the end of June or early July. A 3,500-ton lot was also being discussed for Hong Kong to Yokohama, Japan, for July 20-25 shipment.
Few cargoes were heard from South Korea this week, with only a 3,000-5,000-ton lot being quoted from Korea Main Ports to Mumbai, India, in the second half of July.
Upstream, August ICE Brent Singapore futures were trading at $112.62 per barrel in afternoon trading June 30, compared with numbers at $115.28/bbl on June 23.