A slightly better supply-demand balance supported firming spot price indications in Asia, although producers still faced resistance due to uncertainties in downstream lubricant applications as several countries were not out of the woods yet in terms of Covid-19 infections.
Steeper crude oil and feedstock values added to the push for higher base oil prices, although crude oil price fluctuations usually take some time to filter down to the base oils stratum.
Buyers have also tried to beat possible upward revisions by securing some cargoes over the last couple of weeks, and seemed to be comfortable with the stocks at hand.
Suppliers had been reluctant to place too much product on the spot market has they hoped prices would move up, and held off on communicating offers.
With producers eager to recoup part of the lost margins, and base oil prices going up in other regions such as the United States, there appeared to be more of an impetus to pass through moderate price increments.
Supply from Northeast Asian producers has experienced some tightening, as refinery run rates were reduced since earlier in the year, and most plants continued to run at lower rates. Renewed buying interest from China and Southeast Asia had allowed suppliers to place additional cargoes over the last few weeks as well.
Demand from India was also expected to pick up as lockdown measures eased. There were reports of discussions involving U.S. API Group II cargoes for shipment to India in late June and July, but these may have hit a roadblock as prices in the U.S. have edged up and Northeast Asian offers were considered more competitive, sources said. A majority of U.S. producers have announced 15 cent/gal posted price increases, and spot offers have also moved up.
Increased availability of Middle Eastern base oils, following the resumption of output at Abu Dhabi National Oil Company‘s Group II/III plant in Ruwais in May, meant additional competitive action among suppliers could be expected in India in coming weeks, although recent congestion at UAE’s main ports was causing shipment delays.
Indian buyers were hoping to secure cargoes before prices were marked up. While demand typically slows down during the monsoon season, this year appeared to be an exception as activity resumed following the lockdowns, and many blenders found themselves with depleted stocks, forcing them to venture out into the marketplace.
In China, demand has also firmed and regional suppliers have been in negotiations to sell product to Chinese importers and end-users.
Given an upcoming turnaround at Taiwanese producer Formosa Petrochemical’s Group II plant in July, some buyers were anxious to secure material from alternative sources as Formosa traditionally ships significant amounts of base oils to China, and may not be able to do so during the outage.
Formosa’s Group II base oil plant in Mailiao was anticipated to undergo a maintenance program at the beginning of July until early August.
Formosa also reversed course in terms of domestic list prices, increasing indications in mid-June, after lowering prices at the beginning of the month. Two adjustments in one month are not typical, but they were a reflection of how fast fundamentals were changing. Formosa’s Group II 70N was raised by New Taiwan Dollars (NT$) 0.63 per liter; its 150N was also increased by NT$0.63/liter and its 500N by NT$0.72/liter.
As industrial activity continued to improve in China, lubricant producers were on the lookout for base oils. However, a resurgence of coronavirus cases over the last week fueled some uncertainty regarding a sustained increase in industrial production, as factories may have to be shut down again to prevent the spread of the disease.
Until downstream segments such as the industrial and automotive sectors show a consistent increase in activity, finished lubricant manufacturers were likely to remain cautious about securing large base oil volumes.
Many preferred to depend on term or contract quantities, rather than venture out to secure spot shipments, as term prices were much lower than spot prices, although the gap was likely to close soon.
Availability of Group I base stocks has tightened given that a major producer took its Group I plant off-line in Singapore in early June, while a Thai supplier was heard to be holding off on offering cargoes on expectations that prices would firm.
Group II availabilities were also exposed to upward pressure on account of an expected pick-up in demand and higher feedstock costs. While supply remained more than adequate to cover current requirements, expectations of tightening availability on the back of regional turnarounds in coming weeks pushed some buyers to look for import cargoes.
This seemed to be the case in China, where the price of imports was considered more attractive than domestic prices. As demand in Southeast Asia and India had slumped, several regional suppliers had offered imports at very competitive prices. However, these offers appeared to be evaporating and numbers were moving up, reducing the gap between imports and domestic product.
Upcoming turnarounds at several Chinese base oil plants served as additional encouragement for buyers to seek alternative sources of product.
One of the producers initiating a turnaround was Panjin Northern Asphalt, who was heard to have shut down its Group II and naphthenic base oils plant in Panjin this week for slightly less than a month.
Buying interest in South Korea has also seen a boost, as the country has been very successful in curbing the spread of the coronavirus, with manufacturing output showing significant improvement.
Given the ongoing increase in activity in several Asian markets, and the tightening of supplies, spot prices were assessed as stable to firm this week, with the lighter grades holding at steady levels and more pressure seen on the heavier grades, depending on demand and availability.
Ex-tank Singapore assessments for the Group I solvent neutral 150 grade were unchanged at $490/t-$530/t this week, while the SN500 was at $530/t-$560/t. Bright stock was assessed at $630/t-$660/t, all ex-tank Singapore.
The Group II 150 neutral was holding at $500/t-$520/t and the 500N at $570/t-$610/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was heard at $420/t-$440/t, and the SN500 was up by $10/t at the low end of the range at $460/t-$480/t. Bright stock was assessed at $540/t-560/t, FOB Asia.
Group II 150N was steady at $420/t-$450/t FOB Asia, while the 500N and 600N cuts were holding at $460/t-$490/t, FOB Asia.
In the Group III segment, the 4 centiStoke was stable at $670-$710/t and the 6cSt at $680/t-$720/t. The 8 cSt grade was assessed at $660-680/t, FOB Asia for fully approved product.
Upstream, crude oil futures firmed on Thursday after major producers at an OPEC+ meeting underscored that producers needed to abide by production cuts as promised, and made overtures towards ensuring that certain countries make up for failing to comply with their reduction targets last month. There was also talk about OPEC+ extending the curbs beyond July.
Brent August futures were trading at $41.53 per barrel on the London-based ICE Futures Europe exchange on June 18, from $39.94/bbl on June 11.
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.