Availability of most base oil grades in Asia was adequate to meet requirements, but some cuts continued to show signs of tightness, leading to higher offer prices from several producers.
This appeared to be the case for the API Group I and Group II heavy-viscosity grades, with values for these cuts and bright stock moving up at several source points this week.
In Singapore, a major producer was heard to have raised the price of its Group II 500 neutral grade by $30 per metric ton ex-tank for term shipments to China as of July 30. The same producer had increased the prices of its Group II 150N and 500N by $40/t in June, and was also seeking posted price increases for its Group I, II and II+ grades in the United States. The higher ex-tank Singapore numbers for August shipments were an indication of tight supplies and healthy demand.
Chinese buyers have also been actively searching bright stock barrels, as heavy manufacturing and transportation activities resumed, following COVID-19-related lockdowns and output disruptions. The increased demand coincided with reduced operating rates at several Chinese base oil plants, and tighter availability in the region, as base stock units in other countries had also dialed back production at the onset of the pandemic.
Japanese and Thai Group I plants had started to lower operating rates back in March due to reduced domestic demand brought about by the pandemic, but were slowly increasing rates, with a few cargoes heard to be available for export this month. A couple of Japanese bright stock spot cargoes were anticipated to make their way to China, while some other heavy-viscosity parcels were moving there under contract as well.
Chinese demand for Group II heavy-vis cuts has also been healthy, and given an ongoing turnaround at Formosa Petrochemical‘s Group II plant in Mai-Liao, Taiwan – which is a significant source of Group II cuts for China – availability of these grades remained tight. Formosa continued to meet most term commitments to China in July, but had suspended spot shipments.
It was also heard that Formosa had increased the domestic list price of its Group II grades in August, given firm feedstock prices and reduced availability during the producer’s turnaround. Formosa was expected to restart its Group II plant during the first half of August, once a maintenance program that started in early July is completed.
Group II demand has also been steady in India, but more so for the lighter grades, which are often used for fuel blending. Several Group II cargoes were lined up for shipment from the U.S. to India in August, following a slightly heavier schedule of shipments in June.
The placement of these cargoes into the export market allowed U.S. producers to relieve inventory pressure, and a couple of them were eager to conclude more shipments in August.
Several parcels were also expected to reach India from the Middle East and South Korea. South Korean Group II supply may tighten this month as a producer was understood to be getting ready to embark on a routine turnaround at its base oils unit in Onsan at the end of the month.
Supplies of Group I grades were considered adequate to cover the current call for product in India, given the availability of domestic supplies and imports, although European barrels have dried up given tightness in that region and Iranian cargoes have also been absent for several months.
Whether import demand from India will continue in coming months was difficult to predict. The cargoes that will be shipped this month will arrive in September and October, in time for heightened lubricant demand ahead of seasonal festivals in the last quarter of the year. However, there was some concern that demand might not go up as usual, as the COVID-19 pandemic has resulted in renewed lockdowns in many parts of the country and economic hardship for the Indian population.
These concerns also supported growing resistance to higher offers from suppliers. Base oil buyers adopted a more cautious attitude as they feared being saddled with high-priced inventories if prices were to fall in coming weeks, and demand from the lubricants segments declined.
Spot assessments in Asia were steady or edged up slightly this week, depending on the grade, as some cuts remained tight amid firm crude oil and feedstock prices.
Ex-tank Singapore assessments for the Group I solvent neutral 150 grade were steady at $490/t-$530/t, while the SN500 was assessed higher by $20/t at $580/t-$610/t on fresh discussions this week. Bright stock was adjusted up by $5/t at the top end of the range to $665/t-$700/t, all ex-tank Singapore.
The Group II 150 neutral was unchanged at $500/t-$520/t, but the 500N was adjusted up by $20/t to $660/t-$690/t, ex-tank Singapore, on the back of a major producer’s increase nominations.
On an FOB Asia basis, Group I SN150 was hovering at $420/t-$440/t, and the SN500 at $460/t-$500/t. Bright stock was assessed higher by $20/t at $580/t-610/t, FOB Asia on tight supply.
Group II 150N was unchanged week on week at $440/t-$470/t FOB Asia, while the 500N and 600N cuts were steady at $520/t-$560/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed at $680-$720/t and the 6cSt at $690/t-$730/t. The 8 cSt grade was holding at $670-690/t, FOB Asia for fully approved product.
Upstream, crude oil futures climbed early in the week, despite the fact that analysts predicted significant oil demand destruction in 2020 brought on by the COVID-19 pandemic. The International Monetary Fund expected crude oil demand to record an eight percent decline this year. As a result, prices were likely to be 41 percent lower on average than they were last year, the IMF added.
Futures received a boost on Wednesday on a U.S. Energy Information Administration report that revealed a heftier U.S. crude inventory draw than expected.
On Thursday, August 6, Brent October futures were trading at $45.02 per barrel on the London-based ICE Futures Europe exchange, from $43.40/bbl for September futures on July 30.
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.