A majority of base oil cuts remain exposed to downward pressure in Asia, but bright stock is still the shining star in the lineup, as demand continues to be healthy and supply snug.
Bright stock has been enjoying this position since it cannot be easily replaced with other cuts in certain downstream applications such as transmission fluids, industrial and marine oils.
Spot supply of bright stock cargoes is said to be limited, particularly in Southeast Asia, supporting firm pricing, sources said. This is partly the result of a fire and ensuing base oil plant shutdown which occurred in June at Thailands Integrated Refinery and Petrochemical Complex (IRPC) refinery in Rayong. The companys vacuum gas oil hydrotreater was heard to be still down on account of the fire, but the base oil plant is currently running and produces API Group I solvent neutral 150, SN500 and bright stock, with an annual output of around 320,000 metric tons.
Consumers were also worried that supply would tighten further once the CPC-Shell 250,000 t/y Group I base oil plant is shut down permanently in Taiwan. The plant is currently producing the heavy-vis grades only and will be shuttered by the end of the year ahead of CPCs Kaohsiung refinery decommissioning, scheduled for 2015.
Other producers offers of spot bright stock cargoes were also scarce because of their captive use of base stocks in their downstream lubricants production. Bright stock prices have moved up by around $10-20/ton since late June, sources said.
On the other hand, prices for heavy-viscosity Group II oil prices have come down substantially in recent weeks, sometimes moving within the same range as Group I heavy oils, which has allowed some manufacturers to use Group II oils in mainstream Group I applications.
The price performance of most Group I and II base oil grades has been rather disappointing, because demand has been less vigorous than expected during the June-August time period, although activity is typically slow during this time of the year, sources commented.
The key Chinese market continues to be plagued by lackluster requirements and ample supply, sources lamented. Aside from plentiful domestic availability, some import cargoes continue to be secured by Chinese traders, but the gap between bids and offers is still wide, making it difficult to conclude deals.
A Taiwanese producer has increased the number of Group II spot cargoes being shipped to China in August, given a slump in overall demand in other markets, sources commented. The producer is a regular supplier of term cargoes to Chinese customers, and the availability of spot volumes varies month to month, depending on how much product its term customers are taking.
Buying interest for domestic base stock from Taiwanese buyers has also been lukewarm and the producer was heard to be offering competitive prices, which resulted in limited appetite for imports.
Conversely, China continues to import Group I base oils from different sources, including Russia. August prices for Russian Group I cuts were heard to have inched up by about $20 per metric ton on tighter availability and recent increases in feedstock prices, sources said.
Offers for Russian material had originally been hiked by more than $60/ton for August shipments, but the suppliers may have changed their tune as sales into Europe have turned more difficult because Russian prices are considered to be uncompetitive in most European markets.
With the European market seemingly impossible to reach at the moment, and some countries imposing sanctions on Russia due to political issues, the Chinese market may have become more attractive to Russian suppliers, sources added.
Chinas base oil market may see some changes in coming months, and given the current imbalance in the supply and demand situation, some new base oil projects may be delayed or scrapped altogether, market insiders said. However, no particular projects were mentioned as being at risk.
A few cargoes were expected to make their way into China from the new Hyundai Oilbank-Shell base oil plant in Daesan, South Korea, this month, sources said. The plant can produce 650,000 t/y of Group II oils and sources said that several cargoes had been committed to Chinese accounts.
Prices were flat to slightly firm in Asia this week, with price ranges for heavy-vis oils said to be under pressure given the ample availability of certain grades.
On an ex-tank Singapore basis, Group I solvent neutral 150 was holding at $1,080-$1,120/t. SN500 was assessed at $1,070-$1,120/t, and bright stock moved up by $10/ton at the low end of the range to $1,220-$1,270/t.
On an FOB Asia basis, Group I SN150 was heard at $990-$1010/t FOB. SN500 was quoted at $1,000-$1,020/t FOB. Bright stock prices were steady at $1,170-$1,190/t FOB.
Within the Group II, prices for 150 neutrals were heard at $1,010-$1,030/t FOB Asia, while 500N was assessed at $1,010-$1,040/t FOB Asia.
The Group III segment was quiet, with prices of 4 centiStoke and 6 cSt oils steady at $1,030-$1,080/t FOB Asia, and the 8 cSt grade holding at $1,020-$1,040/t FOB Asia.
The subdued activity levels in the base oils industry were reflected also in the small number of shipping inquiries that emerged during the week. In South Korea, a 2,000-metric ton cargo of base oils was being discussed for Yeosu to Tianjin, China for August 23-27 shipment. A second 2,000-ton lot was quoted from Yeosu to Manila, Philippines, for August 21-27 lifting.
Lastly, A 5,000-6,000-ton parcel was still on the table for Hamriyah, United Arab Emirates, to Port Klang, Malaysia, for prompt lifting.
Crude oil and feedstock prices have eased over the last couple of months, which brought some relief to base oil producers, whose margins have been squeezed for several months.
September ICE Brent Singapore futures were trading at $102.41 per barrel in afternoon trading on August 18, down from numbers at $104.81/bbl on August 11. In comparison, August ICE Brent futures were trading at $112.62/bbl on June 30.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com