Asian suppliers were making a concerted effort to maintain spot levels steady, despite growing downward pressure from a slowdown of activity in certain segments brought on by the coronavirus outbreak.
Participants commented that the changing situation in China, together with softer feedstock prices, had resulted in bearish market sentiment. Buyers said that suppliers trying to hold on to current price levels was unrealistic.
In Taiwan, Formosa Petrochemical was heard to be keeping domestic list prices for February shipment unchanged from the previous month. The producer was understood to be maintaining the price of its Group II 70 neutral, 150N and 500N unchanged from January due to firm feedstock prices at the start of the year and snug supply levels. Prices had not undergone any changes in January either, and it is unusual for the producer not to adjust any of its prices, particularly two months in a row.
Formosa Petrochemical was also reported to have scheduled a routine turnaround at its Group II plant in Mailiao in June. Sources speculated that the turnaround might be brought forward due to the current regional decline in demand, but there was no confirmation from the producer.
In the key market China, there had been some optimism that market conditions would improve in 2020 as there had been some progress towards resolving the trade dispute between the Washington and Beijing, which had impacted China’s economy for over a year.
However, the outbreak of the coronavirus shattered prospects of improved conditions as industrial activity, and in particular, automotive production, has been reduced because employees have been unable to reach plants as the government instructed them to stay home, or there was a scarcity of raw materials due to transportation and supply chain disruptions.
China had already cut back on base oil imports last year given the start-up of domestic Group II base oil plants. These plants were producing low-viscosity grades to fulfill automakers’ requirements for lubricants that help the industry meet stricter fuel economy standards and lower emission specifications.
Many of the smaller, independent base oil plants were heard to have reduced output as they are sitting on high inventories, and larger refiners were anticipated to follow suit. The coronavirus was not only affecting base oil and lubricant demand, but more prominently, fuel consumption in the country. Analysts said that the full impact of the outbreak on China’s economic performance was still unclear.
This week, a glimmer of hope seemed to be emerging as the number of cases of coronavirus in mainland China was said to be dropping, although it was too early to tell whether the outbreak had peaked, experts noted. The virus was not only affecting China, but many economies that have a high dependence on business with China, such as Malaysia and Indonesia. Even in India the potential spread of the deadly virus was causing upheaval.
Crude oil futures reacted to the news that the virus had infected comparatively fewer people, and regained some territory early in the week, but doubts about a significant improvement of the situation in China, together with questions about the extent of future oil output cuts from OPEC+ producers continued to dampen values.
Global crude oil demand was anticipated to decline sharply in the first quarter of this year as the coronavirus forced factories to close in China, disrupted supply chains and halted transportation, analysts said.
According to a report by the International Energy Agency, global oil demand in the first quarter of 2020 was expected to fall by 435,000 barrels per day compared to a year earlier, the first quarterly decline in more than a decade, media outlets reported.
On Thursday, Feb. 13, Brent April futures were trading at $55.17 per barrel on the London-based ICE Futures Europe exchange, compared to $55.09/bbl on Feb. 6.
Base oil spot prices were unchanged week on week, after experiencing a downward adjustment the previous week on lower bids and offers.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade was hovering at $660/t-$680/t, and the SN500 was at $710/t-$730/t. Bright stock was steady at $820/t-$840/t, all ex-tank Singapore.
The Group II 150 neutral and 500N were unchanged at $720/t-$740/t and $730/t-$750/t, respectively, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed at $530/t-$560/t, and the SN500 grade was steady at $540/t-$550/t. Bright stock was holding at $690/t-$710/t, FOB Asia.
Group II 150N was heard at $560/t-$580/t FOB Asia, while the 500N and 600N cuts were mentioned at $580/t-$600/t, FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt were assessed at $760-$790/t and $770/t-$805/t, respectively. The 8 cSt grade was heard at $710-730/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.
Historic and current base oil pricing data are available for purchase inExcel format.