Sluggish demand and ample supply continued to afflict base oil prices in Asia, despite producers efforts to stave off decreases given firm feedstock values.
Some markdowns have trickled into the system as sellers were trying to manage inventories and were keen on whetting buyers appetite for base oil cargoes.
With the end of the year fast approaching and the Lunar New Year celebrated in late January 2020, suppliers felt the time crunch and were therefore eager to conclude business before activity slowed down for both festive periods.
At the same time, lubricant producers will have a short time frame to procure base oils between the year-end holidays and the start of the Lunar New Year. However, with demand prospects fairly uncertain at the moment, it was difficult to plan purchases, sources said.
Despite reports that a number of suppliers appeared willing to lower spot numbers to capture orders, a majority of sellers were trying to keep prices from falling as crude oil and feedstock values continued to compress margins.
A few producers were heard to be resorting to reduced production rates in order to avoid a build-up of inventories ahead of Dec. 31, or were selling feedstocks instead of producing more base oils given better returns.
Additionally, it was heard that a couple of new plants that were expected to come on stream in China earlier in the year have delayed their start-up once again. Sources said that the delays were likely triggered by market economics.
Demand in China has slowed down, and while the volume of imports has decreased since earlier in the year, domestic production together with imports were deemed more than sufficient to cover the current call for product.
One of the sources of API Group I imports to China, for example, has been Russia, and one of the producers who regularly exports Group I cargoes was heard to have reduced its November volumes by a significant amount.
Hebei Feitian Petrochemical was understood to be one of the Chinese base oil units that has delayed its start-up, with a new date for the second phase of its Group II and naphthenic base oils plant expansion in Xinji now scheduled for late December, from an earlier estimate of an August/September start-up. The upcoming expansion would add Group II capacity to an existing Group II plant. Heibei Feitian started up a 100,000 t/y Group II train last year, according to the LubesnGreases Guide to Global Base Oil Refining.
The lower base stock demand in China was partly attributed to reduced activity levels in the automotive industry as a result of the current trade dispute between the United States and China.
The China Association of Automobile Manufacturers reported that overall vehicle production in October reflected a 1.7 percent year-on-year decline, while sales totaled 2.284 million units, reflecting a 4 percent year-on-year decline. Year-to-date production for January through October totaled 20.444 million units, with a 10.4 percent decline compared to the same period in the previous year.
Similarly, the industrial segment – which also consumes large amounts of lubricants, especially the heavy-viscosity grades – has been affected by the tariffs imposed on Chinese goods.
Participants mentioned the imminent implementation of the IMO 2020 regulations that require the use of marine fuels with a 0.5 percent sulfur content as of Jan. 1 as possibly having an impact on base oil output as well.
Some sources expected refiners to stream more feedstocks towards the production of low-sulfur marine fuels as prices were anticipated to increase. In fact, prices have already jumped from earlier in the year, sources said, and this trend was expected to be even more pronounced after Jan. 1. If this were the case, there was speculation that base oil output would be reduced and this would offer support to prices.
For the time being, however, base oil spot prices in Asia were assessed steady-to-soft again this week to reflect deals and discussions on the back of abundant supply and tepid buying interest.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade were down by $20/t between $700/t-$720/t, and the SN500 was also lower by $20/t at $750/t-$770/t. Bright stock was steady at $850/t-$870/t, all ex-tank Singapore.
The Group II 150 neutral was adjusted down by $20/t to $740/t-$760/t, while the 500N edged down by $20/t as well to $750/t-$770/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was adjusted down by $10/t at the high end of the range to $550/t-$570/t. The SN500 grade was lower by $20/t at $560/t-$580/t. Bright stock was assessed down by $20/t at $720/t-$740/t, FOB Asia.
Group II 150N was holding at $570/t-$590/t FOB Asia, while the 500N and 600N cuts were hovering at $590/t-$610/t, FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt were unchanged at $770-$800/t and $780/t-$825/t, respectively. The 8 cSt grade was assessed at $720-740/t, FOB Asia for fully approved product. Some upward pressure was noted on the Group III grades due to limited spot supply from the United Arab Emirates.
Upstream, crude oil futures climbed on Thursday following industry reports that revealed a surprise drop in U.S. crude inventories, while comments from an OPEC official about lower-than-expected U.S. shale production growth in 2020 also boosted numbers.
However, gains were capped by mixed signs for oil demand in China – the worlds biggest crude importer – as industrial output increased less than expected in October, but oil refinery throughput hit the second-highest level ever, according to Reuters.
On Nov. 14, Brent January futures were trading at $62.89 per barrel on the London-based ICE Futures Europe exchange, compared to $62.42/bbl on Oct. 31.
In other industry news, Chinas National Development and Reform Commission increased the retail price of gasoline and diesel on Nov. 5, local Chinese media reported. Based on recent changes in international oil prices, the retail prices of both gasoline and diesel will be increased by 105 yuan per ton (approximately U.S. $15/t).
Under the current pricing mechanism, if international crude oil prices change by more than 50 yuan per ton and remain at that level for 10 working days, the prices of refined oil products such as gasoline and diesel in China will be adjusted accordingly.
Fuel prices in China may have an impact on base oil demand as they determine driving patterns and automotive oil consumption.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.