The main concern for Asian base oil consumers this week was the lack of availability of most grades, with unplanned and routine turnarounds magnifying the scope of the problem. Furthermore, the tight situation ensued in dramatic spot price increases, which end-users were finding problematic to transfer down the supply chain to finished lubricants and other products.
Some of these lubricant manufacturers only saw one option: To reduce operating rates, or halt production temporarily until the raw materials supply situation improved and prices stabilized.
Others tried to increase the price of finished products, but many of the smaller manufacturers said it was hard to compete with larger producers who were better prepared to absorb the higher production costs.
A number of base stock plants were undergoing routine turnarounds in Asia, with a couple not expected to restart for several weeks. Some refineries were still running at reduced rates given lackluster fuels demand, limiting the feedstocks going into base stock production as well.
The API Group I segment seemed to be the most affected by the lack of supply, with spot prices reaching historic highs and buyers desperate to secure any cargoes that were on offer, particularly of bright stock. In the span of one year, bright stock prices have risen from around $690/t-$710 per metric ton, FOB Asia, in mid-March 2020 –when the markets were reeling from the first onslaught of the pandemic and base oil demand had plummeted – to $1,500/t-1,540/t, FOB Asia this week. Prices have especially shown substantial jumps since the beginning of the year. A source who has been active in the base oils industry for many years remarked that it was the first time there had been so many price increases in a relatively short period of time.
In terms of production, Japanese producer Eneos has taken one of its two Group I units in Mizushima off line for an extended turnaround which was likely to last for four months – ostensibly from February through May – although this could not be confirmed.
A Group I unit in India was also scheduled to be shut down for an extended period due to a turnaround at the associated refinery.
In Thailand, a Group I plant was heard to have started a maintenance program earlier this month, and the producer was expected to have no spot availability, according to sources. A second Thai supplier was heard to have restricted its spot sales significantly as well.
An ongoing turnaround at a Group I plant in Singapore, which started in June of last year, had also resulted in reduced availability in the region and a need by the producer to import cargoes from its facilities in the U.S. and Europe.
These turnarounds come on the back of ongoing Group I plant rationalizations due to environmental concerns and profitability issues.
In the Group II and III segments, two major South Korean producers have embarked on turnarounds, limiting spot supply further. A third producer was heard to be running at full capacity this month.
GS Caltex took its Yeosu plant off line for a routine maintenance program in early March, according to sources, but details about a restart date could not be obtained.
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. SK was also planning to start a turnaround at its SK-Repsol plant in Cartagena, Spain, in June.
The strained spot supply conditions were complicated last month by unplanned production outages at plants along the United States Gulf Coast, which typically are the source of spot export barrels. However, U.S. producers were largely unable to participate in the export market since they were giving priority to contract commitments and some were under force majeure, while prices have jumped too, making movements to Asia less likely.
There were reports of a couple of Group I cargoes having been offered through tenders by Southeast Asian suppliers, with a bright stock cargo eventually having been sold to China and a parcel of heavy-vis material combined with bright stock moving to Singapore. Another similar tender was expected to be held during the week by a second supplier.
Chinese buyers have increased their bid levels in order to be able to compete with other consumers in the region, and domestic prices have also shot up, allowing importers to participate in the spot market to secure more cargoes anywhere they may be available and bring them to China.
The start-up of a new Group II base oil plant in China raised expectations that the country may soon be able to start exporting cargoes. The producer may be exempt of certain government restrictions that had so far hampered the export of Chinese base oils.
India routinely imports cargoes from South Korea, Taiwan, the Middle East and the U.S. With imports from this last source being minimal at the moment, Indian buyers have been forced to become more active participants within Asia, adding to the price pressure. Prices of the heavy grades in India continued to edge up due to the lack of availability, while values for the lighter grades were more stable as supply was less strained.
Indian buyers have also turned to Group III base oils to replace the more difficult to find Group II cuts, particularly in automotive applications. Middle East imports had declined over the last two months due to production cuts and maintenance in that region, but available volumes were expected to pick up the pace in coming weeks, particularly for cargoes moving from Saudi Arabia.
Spot prices again showed eye-popping jumps this week because of supply shortages, robust demand and steep crude oil and raw material costs. However, participants also noted that prices were mostly notional because of the lack of spot deals that were able to be finalized. The ranges portrayed below have been revised to reflect discussions and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were generally higher this week. The Group I solvent neutral 150 grade moved up by $30/t to $860/t-$890/t. The SN500 jumped by $100/t to $1,420-$1,460/t and bright stock was up by $50/t at $1,530/t-$1,570/t, all ex-tank Singapore.
The Group II 150 neutral edged up by $10/t to $970/t-$1,010/t, and the 500N was up by $50/t at $1,290/t-$1,340/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed up by $10/t at $780/t-$820/t, and the SN500 surged by $100/t to $1,370/t-$1,410/t. Bright stock was higher by $50/t at $1,500/t-1,540/t, FOB Asia.
Group II 150N climbed by $30/t to $800/t-$840/t FOB Asia, while the 500N and 600N cuts jumped by $100/t to $1,140/t-$1,180/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed up by $30/t at $1,100-$1,140/t and the 6 cSt was also adjusted up by $30/t to $1,120/t-$1,160/t. The 8 cSt grade was also $30/t higher at $1,050-1,090/t, FOB Asia for fully approved product.
Upstream, crude oil futures retreated after inching up earlier in the week on reports of a build in U.S. crude inventories, while the setbacks of COVID-19 vaccination efforts in Europe worried analysts that a global economic recovery may take longer than expected.
On Thursday, March 18, Brent May futures were trading at $67.36 per barrel, from $68.66/bbl on March 11 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $65.60/bbl on the CME on March 17, from $65.45/bbl on March 10 (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.