While fundamentals in Asia improved, the market continued to be plagued by uncertainties as COVID-19 cases spiked in some countries, and the gradual reopening of business did not necessarily lead to an increase in demand for lubricant products given that consumer confidence remained vulnerable.
The foundation for a significant recovery rested on tenuous ground, as the number of COVID-19 cases surged in India and new outbreaks in places such as Beijing, China, could lead again to lockdowns, reduced mobility, fewer job opportunities for a large part of the population, weaker demand and stunted production growth, according to experts.
As lockdown and other outbreak-related measures eased in most of the region, however, there was an uptick in activity in segments such as the automotive industry, given that manufacturing plants were allowed to reopen with social distancing and other procedures in place.
However, as the region’s economies have been battered by unemployment and limited mobility, vehicle sales have plummeted and it was not clear how long it would take for these segments to return to pre-pandemic levels.
In countries such as Japan, auto sales had already dropped before the outbreak, and numbers have not recovered yet. Sales of new mini-vehicles posted the sharpest fall in May as Japan’s auto market nearly halved amid the coronavirus epidemic, the Japan Times reported. The Japanese newspaper also noted that excluding mini-vehicles, sales of cars, trucks and buses fell 40.2% from a year earlier to 147,978 units, the second smallest volume for May since 1968.
But the situation was even more dire in India, where COVID-19 lockdowns have brought automotive sales to a complete standstill, with a 100 percent year-over-year drop in April, Car and Driver.com reported. The article also added that the Indian auto industry was losing an estimated $306 million a day since the country went into lockdown on March 25.
Despite the lack of confidence in many of the key downstream lubricant and additive markets, base oil suppliers reported a more balanced supply/demand scenario as many buyers had returned to trading to replenish depleted stocks.
Curtailed operating rates at refineries and base oil plants also contributed to a tightening of availabilities. Several refineries continued to run at reduced rates as demand for oil products such as gasoline and jet fuel has not improved substantially yet, and this has indirectly impacted base oil production.
As most plants continued to run at trimmed operating rates, a number of facilities were also preparing for upcoming turnarounds, and limited the amount of spot cargoes offered on a spot basis in order to build inventories.
It was heard that one of the facilities that will be taken off-line for a turnaround next month was Formosa Petrochemical Corp.‘s plant in Mai-Liao, Taiwan.
The API Group II facility will be shut down from the beginning of July until early August. The producer typically ships large quantities of base oils to China, but has started to restrict its spot exports on account of the turnaround. Formosa’s plant has a nameplate capacity of 600,000 metric tons per year of Group II base oils, according to Lubes’n’Greases Guide to Global Base Oil Refining.
Formosa also increased domestic list prices last week, reversing its early-June action that called for lower prices as a reflection of steeper feedstock prices and a tightening of supply conditions.
In China, several plants were also taken off line for maintenance, including Panjin Northern Asphalt’s Group II and naphthenic base oils plant in Panjin, which was understood to have been shut down last week for approximately one month.
Importers and distributors in China were heard to be looking to secure product ahead of possible further upward price movements as regional suppliers have upped their offers on renewed buying interest.
South Korean producers have been able to ship an increased number of cargoes to China over the last two months, as economic activity restarted earlier in that country than elsewhere, and this helped offset the drop in requirements from India. As an added incentive, South Korean product was heard to have been offered at very competitive prices a few weeks ago.
While Group II supplies have been plentiful, there has been a tightening of Group I availability as industrial activities have resumed in the region.
Additionally, a major refiner has taken its Group I plant off-line in Singapore for a turnaround, and other producers continue to run plants below capacity.
A Thai supplier was heard to have little extra spot cargoes available, but there are Group I cargoes available from Malaysia, according to sources.
Bright stock was especially snug in China, where supply from domestic facilities has been intermittent since a number of plants had shut down when the COVID-19 outbreak started.
As mentioned above, Group II availability was also tighter, but was considered sufficient to cover the current call for product, particularly as import cargoes from the United States, the Middle East and Europe were lined up to be shipped to India, where demand was revitalized by the easing of lockdowns.
A South Korean Group II supplier was heard to have increased its offers to India by $40 per metric ton for June shipments of light grades, and was still able to place most of its available cargoes. A similar hike was anticipated for July shipments, but it was up in the air whether buying interest next month would support these prices.
As uncertainties lingered in downstream lubricant segments regarding demand moving forward, consumers remained conservative in regards to how much base oil they acquired, and tended to secure smaller volumes, even if this exposed them to potential price hikes in the future.
Group III availability was deemed plentiful and prices were mixed, with some offers for Middle Eastern material going to China heard to have been lowered, while offers for South Korean product inched up, but it was not clear whether these offers had been accepted.
Asian spot prices in general were assessed as stable, with some pockets seeing small increases, depending on supplier and volumes. Firming crude oil and feedstock prices, together with the gradual demand recovery, continued to place upward pressure on pricing.
Ex-tank Singapore assessments for the Group I solvent neutral 150 grade were steady 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 unchanged 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 steady at $460/t-$480/t. Bright stock was holding at $540/t-560/t, FOB Asia.
Group II 150N was heard 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 edged up on Thursday, but were somewhat volatile, as there was support from a marginal improvement in the U.S. economy, but gains were capped by COVID-19 spikes in several U.S. states and a prediction by the International Monetary Fund of a deeper global recession than previously expected.
Brent August futures were trading at $41.63 per barrel on the London-based ICE Futures Europe exchange on June 25, from $41.53/bbl on June 18.
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.