Slowing demand and ample supply of base oils continue to prevail in Asia, as evidenced by production cutbacks and plant shutdowns in key markets.
Given the fast approach of the end of the year, buyers are not eager to secure large volumes, while suppliers are concentrating on lowering inventories.
These conditions have driven a number of base oil producers in China to trim operating rates to help balance stocks, and to delay the restart of a base oil unit following a turnaround.
Sinopec has postponed the restart of its Jingmen API Group II plant in Hubei province until February 2016. The 100,000 metric tons per year Group II unit was idled in August, while the company's 200,000 t/y Group I facility had been shut down in July and resumed production in September. The delay is the result of reduced demand from the downstream lubricants markets, particularly as Group II supplies appear to be plentiful.
A second Sinopec unit, the Jinan plant in Shandong province, was understood to be running at reduced rates. The plant can produce 150,000 t/y Group II base oils and was heard to have reduced its output to about a third of its capacity.
Sinopec Beijing Yanshan was also forced to shut down its base oil plant in Beijing--which can produce 300,000 t/y Group II oils--due to a lack of feedstocks back in October.
Another Chinese state-run company, PetroChina, is running one of its base oil facilities at lower rates. The producer's Dalian unit in Liaoning province, which has a capacity of 250,000 t/y Group I oils, was heard to have reduced its output significantly in November, but further details were unavailable.
PetroChina is also planning to shut down its Daqing unit in Heilongjiang province before the end of the year. The unit has a nameplate capacity of 205,000 t/y Group I base oils, according to Lubes'n'Greases' Guide to Global Base Oil Refining.
While several units in Asia have reduced rates, or are planning to shut down for maintenance, there has been growing talk about the introduction in December or early 2016 of new product from the Abu Dhabi National Oil Company (Adnoc) plant in Ruwais, United Arab Emirates. The plant will have the capacity to produce 120,000 t/y of Group II base oils and 500,000 t/y of Group III oils.
Market participants said that the company has started to market product in the U.S. This means that its base oils will be competing with Group III base stock from Northeast Asian suppliers, which is exported in considerable amounts to the U.S., given that the U.S. has no Group III production. Asian suppliers may therefore have to find additional outlets for their material when the new unit starts. Participants noted that even though transportation from the Middle East may make product more expensive, the higher prices may be offset by the low production costs in the Middle East.
Meanwhile, lower crude oil prices during the week continued to exert pressure on base oil indications. Oil fell to near three-month lows and West Texas Intermediate (WTI) crude futures slipped to below $40 a barrel on growing concerns about a global supply glut, offsetting earlier gains on the back of the Paris terrorist attacks.
December ICE Brent Singapore futures were also slightly lower early in the week, trading at $43.75 per barrel in afternoon sessions on Nov. 23, compared to $45.79 per barrel on Nov. 12.
Volatile oil prices and a need to foster sales prompted Asian producers to adjust offers down, although buying interest remained lukewarm at best.
It was heard that Taiwanese producer Formosa Petrochemical would be lowering its December Group II spot prices into China, but only the heavy-vis 500 neutral will see decreases of around U.S. dollars $30-40 per metric ton to levels around $600-620/ton FOB Taiwan. There will not be any 150N spot cargoes from the producer going into China in the coming month.
General spot discussions for December cargoes have been taking place at lower numbers than November shipments in Asia, and a number of price assessments have been adjusted down as a result.
On an ex-tank Singapore basis, Group I SN150 prices were adjusted down $10/ton at $540/t-$560/t, while SN500 was also down $10/t at $620/t-$640/t. Bright stock also reflected a $10/t drop at $960/t-$980/t.
Group II 150N values were unchanged at $540/t-$560/t ex-tank Singapore, while the 500N was assessed down $10/t at $670/t-$690/t.
On an FOB Asia basis, Group I SN150 was down $10/t at $470/t-$500/t, SN500 was holding at $570/t-$590/t FOB, and bright stock was lower by $10/t at $900/t-$930/t FOB.
In the Group II category, prices for 150N were assessed down $10-20/ton at $470/t-$490/t FOB Asia, while 500N was down $20-40/t at $600/t-$640/t FOB Asia.
The 4 centiStoke and 6 cSt oils in the Group III segment were hovering at $870/t-$900/t FOB Asia, while the 8 cSt grade was heard at $640/t-$660/t FOB Asia.
A flurry of base oil parcels were being discussed for shipment from South Korea, including a 1,000-metric ton cargo made up of 450 tons of 150N and 550 tons of 600N from Yeosu to Ho Chi Minh, Vietnam, for 1H Dec. shipment. A 500-ton lot of 2cSt from Yeosu to Singapore for late Nov. lifting was also mentioned. A 1,600-ton cargo comprising 600 tons of 150N and 1,000 tons of 600N was expected to be shipped from Yeosu to Tanjung Priok, Indonesia, for 1H Dec. lifting. A parcel made up of 1,000 tons of 150N and 500 tons of 600N was on the table for Yeosu to Merak, Indonesia, for Dec. 1-10 shipment. A 1,000-toncargo was being worked on for Yeosu to Xiaohudao, China, for Nov. 26-29 lifting.
Also in South Korea, a 1,000-ton lot was expected to be shipped from Ulsan to Taichung, Taiwan, at the end of Nov. A 2,000-ton parcel for three grades also emerged for Onsan to Sri Lanka for Nov. 25-30 shipment.
In Japan, a 1,500 to 2,000-ton lot was being discussed for Yokkaichi to Zhapu or Tianjin, China, for Dec.9-14 shipment; it requires ship inspection report (SIRE). A 2,000-ton cargo was also likely to move fromMizushima to Hong Kong between Dec. 5-9, and also needs SIRE.
Gabriela Wheeler can be reached directly atgabriela@LubesnGreases.com