There continued to be a shortage of a number of base oil grades, but supply appeared to be improving with the restart of some facilities and the ramp-up in operating rates at others. A consumption slowdown in some countries also contributed to the lengthening of supplies and an easing of upward pressure on pricing.
Spot parcels of API Group I base stocks were still extremely difficult to locate, as most producers were focusing on meeting contractual obligations and had little to no extra product available.
Get alerts when new Sustainability Blog articles are available.
A couple of Southeast Asian producers offered Group I cargoes through tenders, which attracted keen interest, but buyers were less willing to pay the steep prices that had been commonplace a few weeks ago, as there was a general perception that the price pressure had started to subside. A number of consumers were able to find substitutes for some of the grades they needed, or decided to cut back on production rates of finished products as they were unable to offset the steep base oil prices.
Bright stock remained a highly sought-after grade, and was only sporadically offered by South Asian producers through tenders, like the one that took place last week. Bids had been heard at lower levels than previous transactions.
In China, consumers were doing their best to secure product from local producers, foregoing imports as much as possible as they were deemed too pricey. Lead times for some of the imported products were also somewhat uncertain due to ongoing shipping issues and lack of vessel space on certain routes. Domestic producers were competing against each other to secure market share, particularly in view of additional capacity coming on stream in the second half of the year. Group III base stocks originating in the Middle East were in high demand and prices have moved up.
In another key market, India, base stock demand has suffered due to pandemic-related lockdowns and reduced manufacturing and transportation activity. The situation was heard to be improving, but many lubricant manufacturers preferred to use up existing inventories instead of purchasing more product as they hoped prices would start to soften if availability improved in the region.
In the meantime, domestic production may see an uptick as a large facility that was shut down due to a refinery upgrade was heard to have resumed operations.
India typically receives numerous base oil cargoes from the United States, particularly at times when the U.S. market is oversupplied. However, a different picture was observed in recent weeks – the U.S. was experiencing a severe shortage of Group I and II heavy grades and bright stock, and had very little extra product for export.
This resulted in a dearth of cargoes moving to countries that depend on U.S. exports, such as Mexico and South America. It was heard that some Asian suppliers had been exploring the possibility of shipping cargoes to these destinations to fill the gap.
A light-vis cargo was heard concluded for shipment in mid-June from South Korea to Brownsville, Texas, from where it would likely move to Mexico, sources said. Another South Korean base oils cargo was also expected to be lifted before the end of June for shipment to Ecuador. South Korean suppliers have also increased the volumes shipped to India this month. A higher number of cargoes were also concluded to the U.S. over the last two months, as demand for Group III grades has flourished. These export opportunities allowed Asian suppliers to maintain lean inventories and offered support to regional prices.
Supply levels were expected to improve in South Korea following the restart of a couple of plants after the completion of routine turnarounds. SK was heard to have restarted its Group III plant in Ulsan, but has embarked on a turnaround at its Group III plant in Cartagena, Spain. The company had not planned to have two turnarounds in 2021, as one of them had been originally scheduled for 2020, but was delayed due to the pandemic, sources commented, adding that this had limited the company’s export availability.
In Japan, base oil production has also improved with the resumption of operations at the Eneos Wakayama refinery, following an unplanned shutdown caused by a fire at the end of March. The company’s Kainan base oil unit remained off-line due to a routine turnaround which started in mid-May and was expected to last 45 days.
In Taiwan, Formosa Petrochemical has scheduled a turnaround at its Group II plant from early July that was anticipated to last through August. The producer had been trying to build inventories to cover term obligations during the outage and was expected to have suspended spot shipments, although this could not be confirmed. China typically is the receiver of a large portion of Formosa’s output and may see volumes decrease during the shutdown. Formosa has also been steadily exporting base oil parcels to Southeast Asia in recent weeks.
Spot base oil prices in Asia were again mixed this week. While some values were stable, there was downward pressure on a few ex-tank Singapore indications, and prices for Group III edged up on tight supply and healthy demand. The ranges portrayed below have been revised to reflect discussions, deals and published prices widely regarded as benchmarks for the region.
Ex-tank Singapore prices were stable to lower week on week. The Group I solvent neutral 150 grade was holding at $970/t-$1,000/t, and the SN500 was holding at $1,550-$1,590/t. Bright stock was hovering at $1,880/t-$1,920/t, all ex-tank Singapore.
The Group II 150 neutral was lower by $20/t at $1,010/t-$1,050/t, and the 500N was also adjusted down by $20/t to $1,460/t-$1,500/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was holding at $840/t-$880/t, but the SN500 slipped by $10/t to $1,510/t-$1,550/t. Bright stock was unchanged at $1,820/t-1,860/t, FOB Asia.
Group II 150N was holding at $840/t-$880/t FOB Asia, while the 500N and 600N cuts were steady at $1,290/t-$1,330/t, FOB Asia.
In the Group III segment, prices were assessed higher due to tight availability and steady demand from the automotive segment. The 4 centiStoke was up by $20/t at $1,340-$1,380/t and the 6 cSt was also higher by $20/t at $1,350/t-$1,390/t. The 8 cSt grade also moved up by $20/t to $1,280-1,320/t, FOB Asia for fully approved product.
Upstream, crude oil futures slipped during morning trade in Asia on June 10 on the back of reports of a significant build in U.S. product inventories. Values had been buoyed by optimistic expectations about global crude oil demand as many economies have reopened and activity levels have improved.
On June 10, Brent August futures were trading at $72.37 per barrel, from $71.54/bbl on June 3 on the London-based ICE Futures Europe exchange.
Dubai front month crude oil (Platts) financial futures settled at $69.63/bbl on the CME on June 9, from $68.69/bbl on June 2 (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.