As the year comes to an end, oversupply and soft demand continued to afflict the base oils market in Asia. While these fundamentals exerted downward pressure on pricing, spot indications remained fairly stable, partly due to efforts by suppliers to hold on to current indications and partially because of climbing crude oil prices.
While steeper feedstock values do not typically translate into higher base oil values overnight, the fact that prices were moving up offered an additional incentive for sellers to dig in their heels and maintain prices unchanged.
Crude oil futures continued on an upward trek, with prices moving up for six consecutive days and touching the highest levels since Sept. 17, supported by the OPEC+ agreement to curb oil production over the next several months, together with expectations for more positive economic growth rates in emerging markets.
On Thursday, Dec. 19, Brent February futures were trading at $66.50 per barrel on the London-based ICE Futures Europe exchange, compared to $64.38/bbl on Dec. 12.
An important milestone for the petrochemical industry was reached in terms of negotiations between the United States and China this week. A few days after the two countries announced a phase-one trade deal, the Chinese government communicated it had removed six chemicals and oil derivatives from its list of U.S. imports that were subject to tariffs, Reuters reported. The exemption will be in force for 12 months, ending on Dec. 26, 2020, and the list of products includes a type of high-density polyethylene and a low-density polyethylene, as well as white oil and food-grade petroleum wax.
Meanwhile, base oil producers have been focusing on lowering inventories before Dec. 31, and have trimmed operating rates in order to avoid tax repercussions and extra storage expenses. In some cases, they have started to produce more transportation fuels as they yielded better returns. This was the case of a refiner in Japan, sources said.
A Malaysia-based refiner was heard to have cut back sales of API Group III in favor of supplying only Group III+. This was likely prompted by the market showing a strong preference for Group III+ over Group III, sources commented. Demand for Group III and III+ is growing as countries in the region are in the process of implementing new fuel economy and emission standards that will require the increased use of premium base oils for lubricant blending.
The imminent introduction of the International Maritime Organization 2020 regulations that require the use of marine fuels with a 0.5 percent sulfur content as of Jan. 1 was expected to have an impact on base oil output as well. Refiners may opt for streaming more feedstocks into low-sulfur marine fuels production, or use base oils for marine gas oil blending as marine fuel values were anticipated to climb.
While the precise impact of the new regulations was difficult to assess until they have been in place for a while, industry insiders said that freight rates have already started to move up due to the additional expenses ship owners and operators will incur. "I dont know about the impact of IMO, but surely if nothing else it will raise up ocean freight rates by about 10 percent," a source predicted.
In China, demand for imports has declined due to lukewarm demand and the increased availability of base stocks produced at local facilities. Several new and expanded base oil plants started production during the year, although a couple of them have pushed back their start-ups from earlier in the year due to weak market economics.
One of these producers was reportedly Hebei Feitian Petrochemical. The company was heard have delayed its start-up, with a new date for the second phase of its Group II and naphthenics 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 Lubes'n'Greases' Guide to Global Base Oil Refining.
Abundant supply and generally lackluster demand in the region continued to place downward pressure on prices in Asia, but higher crude oil and feedstock numbers countered some of this pressure, resulting in fairly steady base oil prices for the week.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade was unchanged at $680/t-$700/t, and the SN500 was at $730/t-$750/t. Bright stock was holding at $820/t-$840/t, all ex-tank Singapore.
The Group II 150 neutral and 500N were assessed at $720/t-$740/t and $730/t-$750/t, respectively, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $540/t-$570/t, and the SN500 grade was holding at $550/t-$560/t. Bright stock was hovering at around $700/t-$720/t, FOB Asia, although some slightly lower numbers were starting to be discussed. Bright stock was still in a tighter position than most of the other Group I grades.
Group II 150N was assessed at $570/t-$590/t FOB Asia, while the 500N and 600N cuts were gauged at $590/t-$610/t, FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt were mentioned at $770-$800/t and $780/t-$825/t, respectively. The 8 cSt grade was holding at $720-740/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.