Abundant supply and sluggish demand continue to exert downward pressure on base oil prices in Asia, leading to markdowns by local producers. October holidays in several countries are also expected to lead to subdued trading activity.
A major regional producer in Southeast Asia adjusted its API Group II list prices twice during the month of September, which was a clear sign that the supplier was striving to promote sales and remain competitive in an oversupplied market. The reductions totaled about U.S. $65-80 per metric ton for the month, depending on the grade and volumes purchased. The 150 neutral grade price was lowered $65/ton, while 500N fell $80/ton, with the heavier cut seeing a heftier adjustment given better overall supply.
These adjustments, together with the general weakening of market fundamentals – including sliding crude oil prices – cascaded into additional reductions by other suppliers in the region.
In Taiwan, Formosa Petrochemical was heard to have lowered its Group II prices by New Taiwan dollars 1.35-2.00 per liter (or about $0.044-0.065/liter) for October shipments. The reductions were larger for the light-viscosity grades, sources added. Formosa produces approximately 500,000 metric tons per year of 70N, 150N and 500N cuts at its base oil plant in Mailiao, although there are indications that the plant could be running at slightly reduced rates at the moment.
The lower price indications made imports less attractive, and a majority of Taiwanese buyers were likely to turn to domestic supplies to meet their product needs – rather than purchase foreign product – sources explained. Spot offers for imports of 150 would have to be at or below $900-920/ton CFR (cost and freight) to be considered competitive, sources added, which would be a difficult level to achieve.
Similarly, in India, local suppliers have reduced prices in recent weeks because of a slowdown in demand and fierce competition among suppliers. Sources said that Indian base oil producers had dropped Group I and II list prices for October by Rs 1.10-1.50/liter (or approximately $0.017-0.024/liter).
Prices in India have been exposed to downward pressure because of lower regional spot offers, as well as attractive pricing for U.S. product.
Increased availability in the U.S., together with reduced price indications on the domestic front, have prompted suppliers to look for export opportunities in Latin America and Asia.
U.S. producer Motiva moved its domestic Group II posted prices down on October 1, following an earlier reduction in August, and it was not clear whether other producers would follow its lead. The downward price trend in the U.S. was expected to put further pressure on export indications.
Lower price ideas were also seen in Europe, highlighting the supply imbalance affecting the global base oil sector.
The introduction of the new capacity from the SK-Repsol joint-venture in Cartagena, Spain, at the end of September was exacerbating the current oversupply situation, and despite growing demand for high quality base stock, it will be some time before all the added barrels get absorbed, sources commented.
It was also heard that SK would be increasing production of its Group II 500N cut at its Group II/III plant in Ulsan, South Korea. The unit, which has a total capacity of 2 million t/y and is a joint venture between Japans JX Nippon Oil and Koreas SK Lubricants, will continue to produce Group III cuts in the remaining lines.
In terms of pricing, some of the prevailing ranges in Asia have been notionally adjusted down this week to reflect current buying and selling indications.
On an ex-tank Singapore basis, Group I solvent neutral 150 prices were heard at $1,070-$1,120/t and SN500 at $1,060-$1,120/t. Bright stock was assessed at $1,215-$1,265/t.
On an FOB Asia basis, Group I SN150 was quoted at $980-$1,010/t FOB, while SN500 was heard at $990-$1,020/t FOB. Bright stock prices were hovering at $1,165-$1,185/t FOB.
Within the Group II segment, prices for 150 neutrals were revised down by $10/ton to $990-$1,010/t FOB Asia, while 500N was assessed at $1,000-$1,020/t FOB Asia.
While Group III prices continued to be exposed to downward pressure, the spreads were not revised due to a lack of reported transactions. Prices of 4 centiStoke and 6 cSt oils were assessed at $1,030-$1,070/t FOB Asia. The 8 cSt grade was unchanged at $1,010-$1,040/t FOB Asia.
On the shipping front, only a handful of inquiries emerged this week, with three base oil cargoes expected to be shipped from South Korea. A 1,000-metric ton lot of 150N was being discussed for Yeosu to Maoming or Nansha, China, for Oct. 10-14 lifting. A 1,100-ton parcel of 600N was on the table for Yeosu to Nantong for Oct. 11-15 shipment. A second 1,000-ton cargo was also quoted from Yeosu to Tianjin, China, for Oct. 11-15 lifting.
Additionally, a 5,000-ton lot was mentioned from Mailiao to Mumbai for end Oct.-early Nov. shipment. A 2,000-ton parcel was being worked on for Mizushima, Japan, to Merak, Indonesia, for first-half Oct. dates.
Upstream, November ICE Brent Singapore futures were trading at $92.55 per barrel in afternoon trading on Oct. 6, compared to $96.77/bbl on Sept. 29.