Base oil buyers in Asia faced the arduous challenge of locating supplies to cover immediate requirements, as the market was extremely tight and there was no sign of relief, given that several plants were shut down for maintenance and inventories were likely to remain thin until April.
The tight conditions emerged at the start of the pandemic last year, when refineries were forced to dial back run rates due to the dramatic drop in fuels and lubricants consumption. While some units have increased rates, others continued to run at reduced rates as the fuels market, in particular jet kerosene, has not recovered yet.
The snug scenario was exacerbated during the last three weeks by unplanned production outages on the United States Gulf Coast, following a winter storm in mid- February that caused power, gas and water outages in large swaths of the country. At least two major producers and active exporters, Motiva and ExxonMobil, declared force majeure and placed customers on allocation, while the rest of the producers had very little extra material for spot export business.
There were reports of a 5,000-metric ton API Group II cargo having concluded for shipment from the U.S. Gulf to India this month, but this appears to be an exception rather than a common phenomenon at the moment, as a majority of producers are prioritizing domestic contract obligations rather than spot transactions. In the past, India was the receiver of large Group II quantities from the U.S. whenever there was extra availability, but this situation had already deteriorated last September when various hurricanes had impacted U.S. production.
Indian buyers raised their bid levels to attract cargoes from within Asia, with Taiwanese and South Korean parcels heard to have been finalized for shipment to Indian ports. Domestic producers have also lifted prices, receiving support from tight availability and climbing feedstock values.
To magnify the impact of the unplanned production outages, several scheduled turnarounds, taking place both in Asia and the U.S., limited spot availability even further, to a point where there was hardly any spot cargo on offer, with prices catapulted to historic levels.
“Any price these days is theoretical as there is zero spot product available, in Asia or elsewhere,” a source noted. For many downstream lubricants and additive manufacturers, rising prices were a concern, but the strained supply was even a greater headache as some of them faced the prospect of having to halt operations temporarily, or place customers on allocation due to the lack of raw materials. “There are some blenders who have cut back production already,” another source commented.
Lubricants, greases and additives manufacturers have also tried to increase the price of finished products to offset the mounting costs of base oils and other raw materials, but competition with the major brands who have integrated operations made it difficult to implement some of the hikes.
The Group I segment has possibly seen the most extreme tightening, and spot prices have therefore skyrocketed. Permanent Group I plant shutdowns in recent years and ongoing reduced operating rates at existing refineries contributed to the snug conditions.
In Thailand, a Group I plant was heard to have started a maintenance program last week and the producer was expected to have no spot availability during the month, according to sources. A second Thai supplier was heard to have restricted its spot sales significantly as well. A couple of cargoes that were sold through a tender made their way to Singapore and another Southeast Asia destination over the last couple of weeks, with a bright stock cargo attracting particular interest and high prices.
A Group I unit in India was also scheduled to be taken off-line for an extended period due to a turnaround at the associated refinery. Indian refiners have planned several base oil expansions to temper the need for Indian manufacturers to import premium base stocks, but the new capacity will not come online until 2024.
In Japan, Eneos was heard to have started an extended turnaround at one of its Group I Mizushima plants in February and was likely to last for four months, although this could not be confirmed. A second Japanese producer’s plant was heard to have suffered a brief emergency shutdown due to an earthquake on Feb. 13.
South Korean base oil plants are key sources of Group II and Group III base oils for Asia, but two major producers have embarked on turnarounds, limiting spot supply further. A third producer was heard to be running at full capacity to be able to offer additional supplies this month.
SK Lubricants started a turnaround at its Group III plant in Ulsan the first week of March. The turnaround was expected to last 30-45 days. The company was likely to have little extra availability once the turnaround was completed since the producer had been unable to build inventories ahead of the shutdown. The producer was planning to start a turnaround at its SK-Repsol plant in Cartagena, Spain, in June as well.
GS Caltex was also scheduled to take its Yeosu plant off line for a routine maintenance program in March, according to sources, although this could not be confirmed with the producer directly.
The Group III segment has been snug as well, as many blenders have turned to the premium grades to replace the more difficult to find Group II cuts. Volumes of Middle East imports had seen a drop over the last two months due to production cuts and maintenance in the region, but exports were anticipated to regain strength in coming weeks.
In China, spring is the busy oil change season and demand for base oils and lubricants increases. Domestic prices have been moving up, and buyers have also upped their bids for imports in hopes of securing cargoes available in the region, but there are few spot offers at the moment.
The heavy cuts were particularly tight and bright stock has been difficult to obtain in China, despite the recent addition of a number of new plants and the upcoming start-up of a Group II and Group III unit in Hainan province in April.
Spot prices continued on a vertiginous upward trek, given the difficulty buyers encountered in securing cargoes and predictions that the situation would not ease any time soon. However, participants also said that prices were mostly notional because there were hardly any spot transactions taking place.
A major Singapore-based producer increased Group I and II prices by $50-200 per metric ton on March 1, following two rounds of markups in February. The ranges portrayed below have been revised to reflect these movements, and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were stable to higher again this week. The Group I solvent neutral 150 grade was unchanged at $830/t-$860/t. The SN500 was higher by $50/t at $1,320-$1,360/t and bright stock jumped by $120/t to $1,480/t-$1,520/t, all ex-tank Singapore.
The Group II 150 neutral was up by $10/t at $960/t-$1,000/t, and the 500N was up by $20-40/t at $1,240/t-$1,290/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed up by $20/t at $770/t-$810/t, and the SN500 was up by $40/t at $1,270/t-$1,310/t. Bright stock surged by $140/t to $1,450/t-1,490/t, FOB Asia.
Group II 150N was higher by $10/t at $770/t-$810/t FOB Asia, while the 500N and 600N cuts were assessed up by $50/t to $1,040/t-$1,080/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed up by $20/t at $1,070-$1,110/t and the 6 cSt was adjusted up by $20/t as well to $1,090/t-$1,130/t. The 8 cSt grade was also $20/t higher at $1,020-1,060/t, FOB Asia for fully approved product.
Upstream, crude oil futures jumped earlier in the week as a COVID-19 stimulus package was approved in the U.S., fueling hopes of a global economic recovery. Brent futures vaulted over the $70 per barrel mark briefly, but numbers slipped on Thursday as reports showed a surge in U.S. crude inventories.
On Thursday, March 11, Brent May futures were trading at $68.66 per barrel, from $67.08/bbl on March 4 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $65.45/bbl on the CME on March 10, from $62.08/bbl on March 3 (CME note: Settlement prices on instruments without open interest or volume are provided for web users only and are not based on market activity.)
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.