Base oil suppliers reported disappointingly subdued activity in the run-up to the Lunar New Year holiday starting Feb. 7.
A few buyers ventured into the market to secure cargoes for arrival after the holiday, but buying interest was generally lackluster and buying indications rather low compared to selling ideas, sources said.
Consumers have been reluctant to acquire large cargoes and opted for keeping lean inventories as prices have been moving down almost daily. This has been different from previous years, when many customers would build inventories ahead of the Lunar New Year in order to avoid possible increases after the holiday, suppliers said.
Sellers have been trying to encourage orders by reducing spot offer levels, but this strategy has not worked in all cases, as buyers feel there is plentiful availability and little pressure to secure cargoes.
Another singularity this year appears to be the downward price trend observed on the heavy-vis base oils despite the approach of the spring season.
Blenders' transition to utilizing base oils with heavier viscosities in the spring was expected to ensue in a draw-down of stocks of the heavier grades and strengthening prices, sources said, but this has not appeared to be the case so far.
Many of the heavy-vis cuts have seen large price drops in recent weeks, and bright stock within the API Group I tier has been no exception. Aside from competition among suppliers, prices have been exposed to downward pressure because of weaker demand from the industrial and marine segments against healthy inventory levels.
While global supplies of bright stock may tighten due to Group I plant closures, some producers have increased bright stock production over the last few months given healthier prices and margins compared to the other grades.
There is also the possibility that additional Group I tonnage from Iran will be available to the Asian market as the international trade sanctions are lifted, but these volumes are more likely to affect India, and to a certain extent, China.
Discussions for bright stock cargoes for February lifting have been taking place at U.S. $10-$15 per metric ton below January levels, according to sources. February offers were heard near $890/t-$900/t FOB Asia, countered by bids at around $860/t-$870/t FOB. The price gap was heard to have largely hampered the conclusion of business.
Likewise, and also within the Group I segment, it was heard that prices for solvent neutral 500 remained under pressure, with offers edging down $10/t-$15/t this week on ample supply and tepid demand. Most discussions were heard to be taking place within a $430/t-$460/t FOB Asia range.
There has also been continuous price pressure on Group III base oils during the last several weeks, but the price drops have not been as significant as those for Group I and II oils because the Group III market is more limited and has fewer players, market sources explained.
However, demand is expected to remain fairly flat throughout the year, while global supply is anticipated to grow, particularly with the start-up of new capacity in the Middle East.
The Adnoc plant in Abu Dhabi, United Arab Emirates, is slated to come on stream in the first quarter of 2016 and will bring 500,000 tons per year of Group III oils and 120,000 t/y of Group II base stocks into the supply system.
At the same time, it was also heard that the Bahrain Petroleum Co. (Bapco) plant in Sitra, Bahrain, which can produce 400,000 t/y of Group III oils, is contractually constrained from marketing its base oil production until the end of 2017.
In other production news, Sinopec is anticipated to start up its new Group II base oil unit in Maoming, Guangdong province, in the first quarter. The plant already produces 400,000 metric tons per year of Group I cuts and will have a new capacity of 250,000 t/y of Group II oils.
Price assessments for Asian base oils were stable to soft again this week, with a number of grades undergoing downward revisions on lower price discussions, and others remaining unchanged week on week.
Within the Group I category, SN150 was steady at $540/t-$570/t ex-tank Singapore, while SN500 was heard at $610/t-$630/t. Bright stock was assessed slightly lower by $10/t at $990/t-$1,010/t.
Group II 150N was assessed at $510/t-$530/t ex-tank Singapore, while the 500N was heard at $660/t-$680/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was lower by $10/t at $420/t-$450/t, while SN500 was also lower by $10/t at the high end of the range at $430/t-$460/t FOB. Bright stock prices were also lower by $10/t at $890/t-$910/t FOB.
In the Group II category, prices for 150N were holding at $420/t-$450/t FOB Asia, while 500N was assessed down $10/t at $510/t-$530/t FOB Asia.
The 4 centiStoke and 6 cSt oils in the Group III segment were assessed lower by $10/t at $850/t-$880/t FOB Asia, while the 8 cSt grade was also assessed down $10/t at $600/t-$620/t FOB Asia.
Meanwhile, crude oil prices continued to fluctuate on talk of a possible production cutback by OPEC countries. Oil prices jumped after an initial report mentioned a possible meeting between OPEC and non-OPEC countries, which Russia was apparently going to attend. However, anOPEC delegate later said Saudi Arabia had made no such proposal, leading crude to give up much of its gains.
Brent March ICE Brent Singapore futures were trading at $35.22 per barrel in afternoon sessions on Feb. 1, compared to $31.06 per bbl on Jan. 25.
On the shipping front, there were fewer inquiries noted than the previous week, likely because of the approach of the Lunar New Year. For cargoes ex-South Korea, a 400-ton cargo of 600N was quoted for Yeosu to Taichung, Taiwan, for Feb. 15 shipment. A 1,000-ton lot was being discussed for Yeosu to Ho Chi Minh, Vietnam, for the same dates. A 1,800-ton parcel was also on the table for Yeosu to Tanjung Priok, Indonesia, also for Feb. 1-15 lifting.
There was interest to move three cargoes from Japan, with a 2,000-ton lot being discussed for Yokkaichi to Manila, Philippines, for early February shipment and requiring a Ship Inspection Report (SIRE). A second 2,000-ton parcel was expected to be shipped from Mizushima to Singapore on a prompt basis, also requiring SIRE. Lastly, a 2,500-ton cargo was expected to be shipped from Mizushima and Kainan to Singapore in late January or by Feb. 10, also requiring SIRE.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com
Lubes'n'Greases Publications shall not be liable for commercial decisions based on the contents of this report.