Asia Base Oil Price Report

With many of the world's economies hitting a reset button and reopening to business following Covid-19 related lockdowns, and talk about a possible vaccine, base oil market participants expected a gradual, but very subdued, increase in activity levels for producers, blenders, lubricants and additives manufacturers.

A majority of countries were expected to have to deal with a deep economic recession, as most segments have been hit hard by stay-at-home measures, a significant drop in population movements, factory shutdowns and high unemployment figures.

Some countries, such as Singapore, Malaysia and India remain on lockdown until June.

In India, heated arguments were ongoing between the government and petrochemical end-users, as a 15 percent tax on all chemical and petrochemical imports was on the drawing board. The tax is meant to protect the domestic industry from imports, be implemented this month and remain in effect for 11 months, ICIS News reported.

End-users complained that the tax, which would be applicable on all imports under India’s free trade agreements and would also cover both organic and inorganic chemicals, plastics, rubbers, man-made filaments and staple fibers, would translate into higher costs of production and likely force small and medium manufacturers to shut down permanently.

To make matters worse, thousands of people in India and Bangladesh have been left homeless, stranded or without power after Cyclone Amphan slammed into the eastern coast of India on May 20, CNN.com reported. Before Amphan hit, the two nations managed to evacuate 3 million people, a task that was complicated by coronavirus concerns.

India had been importing large volumes of base oils from South Korea, the United States and the Middle East, among others, during the months leading to the coronavirus crisis, but storage tanks were full and buying appetite has fizzled, sources said.

Indian consumers have been trying to work off existing base oil inventories, which were acquired at higher prices than the current offers, but downstream activity was still weak, slowing down the process.

Similarly, base oil imports had been described as lackluster in China in the previous months, but there may be heightened interest in coming weeks given the availability of competitively priced products and an uptick in demand.

Regional suppliers have been facing difficulties in placing base stocks in their own countries and their traditional export markets due to the lack of demand, and have therefore adjusted prices down substantially. This has resulted, for instance, in South Korean offers of heavy grades into China emerging at lower levels than those for Taiwanese material, a situation that is the opposite to the usual condition.

Sources said that prices for API Group II imports to China had fallen by 20 to 40 percent since January, and the adjustments had made them attractive compared to locally produced cuts.

There were also several Group I cargoes of Thai origin expected to arrive in China in the next few weeks.

Asian producers have been able to lower offers as margins have improved with the collapse of crude oil values. However, suppliers said that prices had probably hit the bottom and there was no room for further declines, particularly as crude oil values were on the rise again.

While many Chinese refineries and base oil plants had shut down temporarily at the height of the pandemic, operations have restarted in most facilities, although demand for downstream products remains weak due to the lack of demand for Chinese exports from countries whose economies have been battered by the virus.

China, the world’s second-largest economy, was predicted to show a significant slowdown in growth based on the International Monetary Fund World Economic Outlook report published in April. China's economy was expected to grow by 1.2 percent this year, down from 6.1 percent in 2019.

Another major economy that was anticipated to be hit hard by the pandemic was Japan's. Japan – the world's third-largest economy – was expected to register a contraction for a second quarter in a row, which indicated that the country has plunged into recession mode. Japan's GDP registered a 3.4 percent year-on-year contraction in the first quarter of 2020, following a 7.3 percent decline in the preceding quarter, largely attributed to a two percent increase in the country's consumption tax.

The Japanese government has lifted a state of emergency for a majority of the country's prefectures, but it continued to recommend stay-at-home measures for the population and many businesses remained closed.

Base oil demand has dropped in Japan due to the pandemic amid factory closures and subdued business conditions. A refiner is taking advantage of the lack of demand to complete a routine turnaround. JTXG Nippon Oil was heard to have scheduled a turnaround at its Group I plant in Kainan for 45 days this month, and will conduct a maintenance program at its Negishi Group I plant in September. JTXG also completed a maintenance shutdown at one of its Group I plants in Mizushima in March.

Northeast Asian suppliers were also bracing for competition with the influx of several base oil cargoes to Southeast Asia from Europe, where there is a marked surplus of material.

Meanwhile, base oil prices edged down as producers focused efforts in clearing inventories. However, it was still difficult for them to conclude business as buying interest remained weak on pronounced uncertainties in downstream lubricant sectors.

Ex-tank Singapore assessments were adjusted down by $10-20 per metric ton to bring them more in line with prices widely regarded as benchmarks. The Group I solvent neutral 150 grade was assessed at $510/t-$550/t this week, while the SN500 was at $530/t-$570/t. Bright stock was heard at $650/t-$680/t, all ex-tank Singapore.

The Group II 150 neutral was revised down by $20/t at $520/t-$540/t and the 500N by $10/t at the low end of the range to $570/t-$610/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 moved down by $20/t at $440/t-$460/t, and the SN500 was holding at $450/t-$480/t. Bright stock was also down by $20/t at $540/t-560/t, FOB Asia.

Group II 150N was adjusted down by $30/t at $420/t-$450/t FOB Asia, while the 500N and 600N cuts were down by $20/t at $450/t-$470/t, FOB Asia.

In the Group III segment, the 4 centiStoke was down by $20-30/t at $670-$710/t and the 6cSt was down $20/t at $680/t-$720/t. The 8 cSt grade was lowered by $20/t to $660-680/t, FOB Asia for fully approved product.

Upstream, crude oil futures were trading at their highest levels since March, boosted by falling U.S. crude inventories, OPEC+ supply cuts and recovering demand as governments eased restrictions implemented on account of the coronavirus crisis.

Brent July futures were hovering at $36.58 per barrel on the London-based ICE Futures Europe exchange on May 21, up from $30.11/bbl on May 14.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com. 

Lubes’n’Greases shall not be liable for commercial decisions based on the contents of this report. 

Historic and current base oil pricing data are available for purchase in Excel format.