Base oil prices in Asia have succumbed once again to downward pressure on the backs of abundant supplies, lackluster demand and falling feedstock values.
Sources agreed that downward price adjustments are not unusual in the fourth quarter, because suppliers strive to lower inventories ahead of the closing of books at the end of the year, and hope to promote sales by offering markdowns.
However, what is rather atypical this year is that there have been a number of consecutive price decreases following each other closely, and this is mostly attributed to the supply glut brought on by the new capacity entering the market over the last few months.
The segment that seems to be suffering the most under the downward pressure is the API Group II sector, because of the additional capacity coming on stream from new plants such as the 650,000 tons per year Hyundai Oilbank-Shell unit in Daesan, South Korea, and the inception of added barrels in the United States from the new Chevron plant in Pascagoula, Mississippi. The Chevron plant can produce 1.25 million t/y of Group II oils.
U.S. suppliers have been eager to find a home for some of their Group I and II cargoes and have been offering competitive indications for exports, placing pressure on exports from other Asian production sources, as well as on local prices in countries such as India.
According to sources, Indian producers have dropped their Group I list prices by close to 2.00 Indian rupees per liter for November cargoes as compared to October shipments because of competition with imports, ample supply, and sluggish demand.
This week, it was also heard that a major Southeast Asian refiner would be reducing its Group II 150 neutral and 500N list prices by $70 per metric ton in November. The producer had previously decreased prices three times between September and mid-October, with the decreases totaling $95/ton for the 150N grade and $110/ton for the 500N cut.
The refiner is expected to complete a Group II expansion at its Singapore plant in early 2015.
The same producer has adjusted prices down in the U.S., with its Group I and Group II+ offerings undergoing fresh revisions less than a month after another string of decreases had been completed. The rest of the U.S. producers have also dropped posted prices twice in about a month given weakening market conditions.
Meanwhile, in Taiwan, there were also reports of hefty price drops by a local producer. Formosa was heard to have lowered its November Group II spot offers into China in line with the declines seen in the region. The supplier is understood to have lowered its N150 by $80-85/ton, while its N500 was reduced by $90-100/ton compared to October values, sources said.
As a result of the latest base stock price adjustments, and the drop in crude oil and feedstock values, Asian buying and selling ideas have been revised down this week.
On an ex-tank Singapore basis, Group I solvent neutral 150 prices have been assessed down to $1,030-$1,070/t and SN500 to $1,020-$1,080/t. Bright stock was assessed at $1,180-$1,225/t.
On an FOB Asia basis, Group I SN150 was revised down by $80/ton to $830-$860/t FOB, while SN500 was heard at $840-$880/t FOB. Bright stock prices were heard at $1,125-$1,145/t FOB.
Within the Group II segment, prices for 150N and 500N were revised down by $80/ton to $840-$860/t FOB Asia and $860-$890/t FOB Asia respectively.
In the Group III segment, prices were notionally marked down to reflect the current price trend, with few transactions reported during the week. Prices of 4 centiStoke and 6 cSt oils were assessed at $980-$1,020/t FOB Asia, and the 8 cSt grade at $960-$990/t FOB Asia.
On the shipping front, despite the bearish market mood, quite a few inquiries surfaced to move product from South Korea across Asia this week. A 1,000 metric ton cargo was being worked on for Ulsan to Merak, Indonesia, for November dates. A 3,000-ton lot was being discussed from Ulsan or Daesan to Bayuquan, China, for end of November. shipment. A 6,500-ton cargo of three grades was expected to be shipped from Ulsan to Tokyo Bay, Japan, on Nov. 18-22. A 3,500-ton parcel was likely to move from Daesan to Merak in mid-November. A 4,500-ton parcel made up of four base oil grades was on the table for Yeosu to Merak and/or Ciwandan, Indonesia, for Nov. 1-10 lifting. A 4,000-5,000-ton lot was expected to be shipped from Yeosu to Mumbai, India, between Nov. 15 and Nov. 30. A 1,000-ton cargo was mentioned from Yeosu to Tianjin, China, for Nov. 1-25 lifting. A 1,350-ton parcel of two grades was expected to be shipped from Onsan to Tsurumi, Japan, on Nov. 19-23.
Upstream, December ICE Brent Singapore futures were trading at $83.61 per barrel in afternoon trading on Nov. 10, compared to $85.21 per barrel on Nov. 3.