The strained spot supply conditions in Asia were not expected to improve significantly any time soon, as several plants were shut down for maintenance and demand was nearing its peak spring cycle. Buyers encountered serious difficulties in sourcing product and spot prices continued on an upward trek.
Several base oil plants were in the process of completing turnarounds, with a couple not expected to restart for several weeks.
To make matters worse, lackluster fuel demand resulted in reduced operating rates at some refineries, restricting the amounts of feedstocks available for base oil production. A flare-up of COVID-19 infections and new mutations of the virus in India, for example, were expected to result in fresh restrictions, reduced mobility of the population and a drop in fuel and lubricants demand.
One of the base stock categories that bore the brunt of the supply shortage was the API Group I sector, with buyers finding it particularly challenging to locate heavy-viscosity grades and bright stock. This has catapulted spot prices to historic highs and led consumers to search for alternatives in other regions, or use naphthenic grades whenever substitution was possible. However, the snug supply situation appeared to be equally affecting all regions, and the naphthenic sector has tightened as well.
Additionally, buyers took as much product as possible under contract, leaving suppliers with little or no spot material. In some cases, it was heard that these buyers had sold on part of their cargoes on the spot market, as prices surpassed those of product purchased under contract. Some end-users were also trying to implement increases in downstream lubricant and finished products markets to offset the rising price of base oils and transportation.
Southeast Asian producers have recently offered heavy grades and bright stock via tenders. Last week, it was heard that a Thai heavy-vis cargo had been sold, and a couple of additional parcels were expected to be offered over the next few days for April shipment.
Chinese buyers have actively sought to secure Southeast Asian heavy-vis base oils by upping their bids, leading to higher prices week-on-week.
Indian blenders have also participated in bids for Southeast Asian heavy base oil parcels, but appeared to have been less successful at securing material. They have been able to procure light grades from South Korea and Qatar, though.
Indian buyers were dealing with both the strain of having to locate cargoes within the region and the escalating prices. While South Korea, Singapore, Taiwan and the U.S. are regular sources of base oils for India, tight availability at these origins meant that Indian consumers were forced to look elsewhere. Higher domestic prices at some of these locations, such as the U.S. and Taiwan, made prices less attractive for export business.
There were reports that a few Group I parcels were moving from Iran to India, while additional volumes of premium grades also expected to be shipped from the United Arab Emirates and Qatar this month.
In terms of Group I production, a Group I unit in India was scheduled to be shut down for an extended period due to a turnaround at the associated refinery.
In Japan, 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 late May or June – although this could not be confirmed.
In Thailand, a Group I plant was heard to have started a maintenance program in early March, 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 as well.
An extended turnaround at a Group I plant in Singapore, which started in June of last year, also led to reduced availability in the region and a need by the producer to rely heavily on intra-company shipments from plants in other regions for its own lubricant operations.
Several Group I plants were shut down in recent years due to environmental concerns and profitability concerns and this has exacerbated the short supply.
The tight supply was not only affecting the Group I segment, but the Group II and Group III sectors as well, as two major South Korean producers were completing turnarounds, cramping spot supply further. A third producer in South Korea was heard to be running at full capacity this month, but its spot availability was also limited. Another producer was heard to have offered small light-vis cargoes 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 due to strong demand. SK was also planning to start a turnaround at its SK-Repsol plant in Cartagena, Spain, in June.
Asian spot prices showed massive gains again this week – with the exception, perhaps, of bright stock – but the increases were not as staggering as those seen the previous week. Again, participants noted that most pricing was largely notional as there was hardly any spot product to transact. A major Singapore-based refiner was heard to have communicated increases between $40-190 per metric ton in mid-March, and these hikes partly drove up this week’s assessments. The ranges portrayed below have been revised to reflect discussions and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices rose this week in line with higher indications by a major producer. The Group I solvent neutral 150 grade moved up by $60/t to $920/t-$950/t. The SN500 also was higher by $60/t at $1,480-$1,520/t. Bright stock jumped by $100/t to $1,630/t-$1,670/t, all ex-tank Singapore.
The Group II 150 neutral edged up by $30/t to $1,000/t-$1,040/t, and the 500N was up by $60/t at $1,350/t-$1,390/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed up by $50/t at $830/t-$870/t, and the SN500 moved up by $60/t to $1,430/t-$1,470/t. Bright stock surged by $90/t to $1,590/t-1,630/t, FOB Asia.
Group II 150N climbed by $20/t to $820/t-$860/t FOB Asia, while the 500N and 600N cuts climbed by $30/t to $1,170/t-$1,210/t, FOB Asia.
In the Group III segment, the 4 centiStoke was assessed up by $40/t at $1,140-$1,180/t and the 6 cSt was also adjusted up by $40/t to $1,160/t-$1,200/t. The 8 cSt grade was also $40/t higher at $1,090-1,130/t, FOB Asia for fully approved product.
Upstream, crude oil futures tumbled this week, despite a brief uptick when a container ship ran aground on the Suez Canal, blocking oil shipments. Crude prices were pressured down by concerns over new pandemic lockdowns and a slow vaccine rollout in Europe, leading to a potential decrease in oil demand. A build in U.S. crude inventories also dampened values. Analysts were anxious to find out whether OPEC+ would decide to continue its production cuts in April.
On Thursday, March 25, Brent May futures were trading at $63.30 per barrel, from $67.36/bbl on March 18 on the London-based ICE Futures Europe exchange. Dubai front month crude oil (Platts) financial futures settled at $62.64/bbl on the CME on March 24, from $65.60/bbl on March 17 (CME note: Settlement prices on instruments without open interest or volume are provided for web users only and are not based
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.