Sharp stock market fluctuations and volatile crude oil prices have unnerved base oil market participants in Asia, with business remaining rather muted as a result.
All eyes were on China’s stocks and the government’s economic policies this week, as changes in this country are impacting shares and businesses around the world, and the base oil segment seemed to be no exception.
China markets stabilized on Aug. 27 as investors in Asia joined a global stocks rally. The benchmark Shanghai Composite closed up 5.3 percent, while the smaller Shenzhen Composite added 3.3 percent, a CNN Money report stated. Before rebounding on Thursday, the Shanghai Composite had lost more than 20 percent over the previous five days.
The market swings in China reverberated in Taiwan and South Korea as numerous base oil export cargoes make their way to Chinese customers every month.
Sellers said that interest from Chinese importers had waned because of the depreciation of the yuan, and because traders prefer not to hold hefty inventories as sentiment among buyers has turned extremely cautious.
As a means to encourage purchasing, Taiwanese producer Formosa Petrochemical was heard to have adjusted down spot offers of API Group II 150 neutral to levels around $530-$550 per metric ton FOB Taiwan and of 500N to around $720/t-$740/t FOB.
Formosa was expected to increase its exports to China in September because of improved utilization rates at its 600,000-metric ton per year Group II plant. Formosa had cut the volumes being shipped to China earlier this year, following a March/April turnaround at its base oil plant in Mailiao.
China’s troubles have also impacted business in Japan, with exports seeing a decline over the last few weeks and prospects for the coming months still undefined. “With China’s slowdown, the devaluation [of the Chinese currency], and the summer holidays, it has been pretty quiet,” a market source confirmed.
However, suppliers were hopeful that demand from different Asian markets, and particularly from China, would pick up after the summer, when production rates increase ahead of another slowdown at the end of the year.
While Japanese demand for base stocks and lubricants has remained fairly steady – with seasonal adjustments taken into account – prices have generally fallen since the beginning of the year, as many customers purchase base oils and finished lubes on formula-based contracts, often linked directly to crude oil and feedstock prices.
If crude prices stay at current levels or fall further, base oil and lube prices are likely to have little upside potential, sources agreed. “It is going to be a rocky year,” a participant commented.
Additionally, Japanese suppliers expressed concerns about a stronger yen, which could lead to a decrease in exports over the next few months.
Base oil price indications in Asia were generally lower this week, weighed down by weaker crude oil and feedstock prices, together with uncertainties surrounding demand in the coming weeks.
On an ex-tank Singapore basis, Group I SN150 prices were heard at $630/t-$660/t, while SN500 was hovering at $790/t-$810/t. Bright stock was holding at $1,120/t-$1,140/t.
On an FOB Asia basis, Group I SN150 was revised down by $10/t at $530/t-$550/t. SN500 was also lower by $10/t at $690/t-$710/t FOB, and bright stock was assessed at $1,080/t-$1,110/t FOB, revealing a $10/t decrease at the low end of the range.
Within the Group II category, prices for 150N were adjusted down by $20/t-$30/t to $540/t-$570/t FOB Asia. Prices for 500N were slightly lower at $730/t-$750/t FOB Asia, reflecting a $5/t drop at the high end of the spread.
The Group III assessments were also revised down to better reflect current buying and selling ideas. The 4 centiStoke and 6 cSt oils were gauged at $890/t-$910/t FOB Asia, while the 8 cSt grade was at $660/t-$680/t FOB Asia.
On the shipping front, after a flurry of inquiries last week, interest in vessel space for base oils appeared more subdued. In South Korea, a 1,600-metric ton cargo of two base oil grades was quoted for Yeosu to Merak, Indonesia, forSep. 3-7 lifting. A 3,000-ton parcel of three grades was being worked on for Yeosu to Chennai, India, for Sep. 10-20 lifting. A second 3,000-ton lot of three grades was heard for Yeosu to Mumbai, India, for Sep.20-28 dates. A 1,500-ton cargo was being discussed for South Korea to Port Klang, Malaysia, for Sep. 25-30 shipment.
A 3,000-ton lot was still on the table for Rayong, Thailand, to Chittagong, Bangladesh, for Sep. 10-20 lifting. A 5,500-ton cargo was likely to be shipped from Hong Kong to Yokohama, Japan, on Sep. 18-20.
Upstream, crude oil prices appeared to be on a rollercoaster, dropping significantly one day and shooting up the next. While sentiment remained generally bearish, gains in stock markets across all regions and a decline in weekly U.S. oil inventories drove futures into positive territory.
October ICE Brent Singapore futures traded at $44.64 per barrel in afternoon trading on Aug. 31, compared to $48.75 per barrel for futures on Aug. 25.
Gabriela Wheeler can be reached directly atgabriela@LubesnGreases.com.