The Asian base oils market showed a few pockets of tight spot supply, thought to have been brought about by reduced refinery operating rates, an uptick in demand, the decline of export availability in other regions, and recent and ongoing turnarounds.
A majority of base oil plants in Asia have been running at reduced rates since the lockdowns and other COVID-19 restrictions started in the first quarter of the year. Market observers said that on average, plants were running at 70% capacity, but there were some that had lowered their rates to near 60%, as was the case for at least one refiner in Japan. Others had idled operations completely, including some smaller plants in China, according to sources.
Some of the shutdowns had been scheduled ahead of the pandemic for routine maintenance, but some had been triggered by the sharp drop in demand. However, most of these smaller units have since been restarted.
A number of refiners have started to increase their operating rates, but participants said that there may be a product void before their increased production hits the market.
API Group I producers were particularly careful about ramping up operating rates as the economics of higher run rates were not supported by the current price and demand of certain refined products, such as motor fuels.
At least one large refiner in Singapore was keeping its Group I plant off-line, and there was talk that this situation may be extended until the end of the year. No direct confirmation could be obtained from the producer, who as part of its official policy abstains from publicizing operations data.
As a result, the Group I cuts were deemed fairly tight in Asia, with only a few cargoes said to be available from Thailand at higher price levels. Bright stock in particular was said to be in short supply, supporting steeper price ideas, which buyers appeared willing to accept given the lack of adequate substitutions.
Group I spot availability has also dried up in Europe, so importing from that region did not appear to be an option.
At least one Group I cargo was heard to have been shipped from the United States to India in the last few weeks, but it was not clear whether there would be additional parcels available from the supplier as it was heard to be sold out of spot volumes.
As a result, offer levels from suppliers who were able to muster a few barrels of Group I supply have edged up, particularly for the heavy-viscosity grades and bright stock.
Similar conditions were detected in the Group II segment, with the heavier viscosities said to be less readily obtainable and commanding higher values from those sellers that had any spot availability.
Higher prices were prevalent in India, as buyers were on the lookout for both Group I and Group II cargoes amid a dearth of available base oil barrels. “Buyers in India and Southeast Asia are growing a bit anxious that in case demand increases, there will be no supply. Normally this would prompt big cargoes from Europe and the U.S., but except for a few more cargoes of Group II into India, there is no relief from either,” a market source noted.
Several cargoes, totaling close to 50,000 metric tons, were heard to have been concluded for lifting to India in August, with an estimated arrival in mid-September, and these shipments, together with domestic demand and reduced operating rates at U.S. base oil plants, appeared to have decimated spot export availability in that country for the time being.
Domestic base oil production and consumption had slipped in India during the second quarter on account of lockdowns and other pandemic-related restrictions, together with a growing number of employees who were infected. However, there has been a demand recovery since then, and downstream lubricant segments such as the auto industry have shown a small improvement.
Some segments of the Indian economy were not only battered by the pandemic, but also by the heavy monsoon rains and flooding this month.
The Group III segments in Asia were described as balanced to long at the moment, with prices hovering a fairly stable levels.
In terms of turnarounds, Taiwanese producer Formosa Petrochemical was heard to be wrapping up a maintenance program at its Group II plant in Mai-Liao and was expected to gradually restart operations this week. The unit was taken off-line at the beginning of July and spot availability from the producer had dwindled. Increased supply will allow Chinese buyers to replenish stocks, since the producer typically ships large quantities of base oils to China.
In South Korea, S-Oil was understood to be preparing to take its Group II and III plant in Onsan off-line for routine maintenance at the end of the month, although no producer confirmation was available at the time of writing.
Despite expectations of potential supply shortages of certain grades, market players were generally resisting higher price ideas, but a number of suppliers were heard to have achieved slightly steeper numbers. However, the upward momentum may be short-lived as pandemic-related issues and an economic downturn in many countries were expected to stifle base oil and lubricant demand in coming weeks.
For the time being, spot prices in Asia were assessed as stable to firm, with small increases achieved for some of the most sought-after grades.
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 $10/t at the top end of the range at $580/t-$620/t on higher bids and offers. Bright stock was steady at $665/t-$700/t, all ex-tank Singapore.
The Group II 150 neutral was unchanged at $500/t-$520/t, and the 500N was holding at $660/t-$690/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was stable at $420/t-$440/t, but the SN500 edged up by $20/t to $480/t-$520/t on tight conditions. Bright stock was assessed higher by $10/t at the top end of the range at $580/t-620/t, FOB Asia, on fresh discussions this week.
Group II 150N was steady 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 hovering 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 inched up on talk about growing U.S.-Iran tensions, which could lead to supply disruptions, and on a drop in U.S. crude oil inventories and drilling. Nevertheless, both West Texas Intermediate and Brent futures continued to flutter within a fairly narrow range.
On Thursday, August 13, Brent October futures were trading at $45.52 per barrel on the London-based ICE Futures Europe exchange, from $45.02/bbl on August 6.
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.