Asian base oil participants hoped to rekindle market activity in September, following local holidays and adverse weather conditions in parts of the region, which had thwarted trading and impacted logistics throughout the month of August.
Typhoon Lekima left 28 dead and a million evacuated in China earlier in August, and southern Japan was bracing for Typhoon Lingling on Sept. 5. Strong monsoon rains have also caused devastation in large areas of India.
Lackluster demand levels and ample base stock supply resulted in spot price erosion for most base oil grades last week, but few adjustments were reported this week.
Nevertheless, volatile feedstock and crude oil prices meant that base stocks remained exposed to pressure, and participants were therefore keeping a nervous eye on market developments.
Crude oil prices climbed on Thursday alongside stocks as sentiment improved in global financial markets on the back of reduced political tensions in Italy, the United Kingdom and Hong Kong. However, anticipated data from the U.S. Energy Information Administration that was likely to show an inventory build capped gains.
On Sep. 5, Brent November futures were trading at $60.48 per barrel on the London-based ICE Futures Europe exchange, and were hovering at $60.42/bbl for October front month on Aug. 29.
Aside from price fluctuations in upstream segments, the market was also afflicted by uncertainties in the various downstream lubricant sectors, given the current business environment. With the ongoing trade dispute between the United States and China and a new round of tariffs recently executed, market players said that lubricant requirements had subsided as blenders supplying the automotive and industrial segments were unsure about demand prospects in coming months.
Furthermore, despite fairly recent turnarounds at base oil facilities in Singapore and Japan, the Asian base oil market remained well-supplied.
Import activity in China was subdued, with Middle East product still making its way into the country alongside that from more traditional sources such as South Korea and Taiwan.
However, overall import volumes have declined over the last three months due to tempered demand and the start-up of new base oil facilities in China, including Hengli Petrochemical in Dalian, Shida Changsheng in Shandong and Kaitai Petrochemical in Zibo, according to LubesnGreases Guide to Global Base Oil Refining.
Suppliers also hoped that demand in India would start to improve given the end of the monsoon season. Base oil demand in India was still considered healthier than in other Asian countries, but prices remained depressed given ample availability of most grades and general market dynamics.
The influx of cargoes arriving in India from the Middle East - which are typically offered at attractive levels - together with competition among Asian suppliers hampered attempts at raising values, sources said.
Iranian API Group I base oils were not as visible as in the past due to international sanctions on Iranian oil exports, but Indian blenders were able to use Group II products in many downstream applications as prices were actually on par or lower than those for Group I grades, with the exception of bright stock.
However, the quantities of Middle East cargoes shipped to India and Asia in general has declined as compared to late last year and the first half of this year because producers were concentrating their efforts in exporting to Europe and the Americas, given more advantageous netbacks. With a number of plant turnarounds scheduled in Europe during the third and fourth quarters, there could be more opportunities for Middle East exports to move there, although European producers have been preparing inventories to cover for the production shortfall.
At the same time, it was heard that a number of Group II cargoes of Asian origin were making their way to the Middle East as suppliers continued their search for substitute consumption points outside their own region.
It was heard that a sales tender held by Taiwanese producer Formosa Petrochemical for a Group II cargo of 150 neutral and 500N for October delivery ended up not being awarded because bids were lower than prevailing spot prices.
There were also reports that a major Singapore-based producer had lowered the contract price for exports to China of its Group II 150 neutral base oils by U.S. $30 per metric ton, and its 500N by $45/t as of Aug. 31 on the back of currency fluctuations and soft market fundamentals.
Asian suppliers were hoping to step up September shipment discussions, but business remains relatively subdued. Spot price levels were largely unchanged this week following more generalized downward adjustments the previous week, with the exception of a couple of grades, which have been revised to reflect current discussions.
Ex-tank Singapore Group I prices for the SN150 grade were assessed at $720/t-$740/t, while the SN500 was heard at $770/t-$790/t. Bright stock was revised down by $10/t to $840/t-$860/t, all ex-tank Singapore.
The Group II 150 neutral was gauged at $750/t-$770/t, while the 500N was hovering at $760/t-$780/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was heard at $600/t-$620/t, and the SN500 grade was assessed at $560/t-$580/t. Bright stock was near $740/t-$760/t, FOB Asia.
Group II 150N was steady at $560/t-$580/t FOB Asia, while the 500N and 600N cuts were revised down by $10/t to $570/t-$590/t, FOB Asia to reflect discussions.
In the Group III segment, the 4 centiStoke was stable at $790-$820/t and the 6 cSt at $810/t-$855/t. The 8 cSt grade was also steady at $710/t-$740/t, FOB Asia for fully-approved product.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.