Asian players preferred to tread cautiously as they returned to business following the Lunar New Year holiday, with March discussions slowly gaining strength amid expectations that prices were close to bottoming out.
Most negotiations were taking place against a backdrop of still-volatile crude oil prices and ample supply of most base oil grades, although a few participants pointed out that availability of a few of the heavy-viscosity grades and bright stock had tightened.
Players acknowledged that current conditions were the “new norm” and that the situation was not likely to change any time soon, particularly as analysts forecast that oil values were likely to remain near U.S. $20 to $30 per barrel in the near term.
Likewise, industry participants attending the ICIS World Base Oils and Lubricants Conference in London Feb. 17-19 underlined that base oil supply will continue to outstrip demand for the foreseeable future as requirements from the finished lubricants segment will stay largely flat, while global base oil capacity will continue to increase.
Several new projects, expansions, and upgrades are in the pipeline, although construction of several new plants has either been postponed or cancelled altogether due to the weak market environment, experts said.
Speaking at the ICIS event, Stephen Ames, Managing Director of SBA Consulting, said that the timing and size of the original supply tsunami he had predicted a couple of years ago has slowed down, or lessened by the cancelation and shelving of several projects.
Ames noted that a total of 14 plants and 5 rerefineries – accounting for a total of 5 to 6 million metric tons of new worldwide capacity previously expected to come on stream in the next few years – have been scrapped or delayed. An additional 650,000 metric tons coming from projects to upgrade API Group I units to Group II have also been pushed back.
Nevertheless, there are still several projects that have recently come on line, or are expected to stream in the next few months. Ames mentioned that five plants accounting for a total of between 1.1 million and 1.2 million tons per year of new capacity came on line in 2015, and at least another five plants with a total production of 2.2 million t/y are awaiting start-up or are under construction in 2016. Another four potential projects are expected to add 800,000 t/y of base oils to the supply system in the 2018-2019 timeframe.
A large portion of the new production is expected to come on stream in China, confirmed Whitney Shi, Senior Industry Analyst for ICIS China/C1 Energy. For instance, Sinopec is expected to bring a new plant in Maoming on line in the first half of 2016. The unit will have capacity to produce 400,000 t/y of Group I oils and 250,000 t/y Group II cuts. China National Offshore Oil Corp. (CNOCC) is also slated to start up a new Group II plant in Taizhou in June 2016, bringing 400,000 t/y of additional capacity to the market.
At the same time, there are several Group I plants that will be decommissioned over the next few years – particularly in Europe – several speakers pointed out, although there will be closures in Asia as well. In October 2015, Yanshan Petrochemical shut down its Group I plant permanently and others may follow suit.
While these closures may help balance the market as demand also shifts to higher-performance Group II, II+ and III oils, it will be several years before the new capacity can be absorbed.
However, there is light at the end of the tunnel, according to Geeta Agashe, president of consulting firm Geeta Agashe and Associates LLC, who also addressed delegates at the ICIS conference.
While consumption of finished lubricants for the automotive industry is shrinking in developed nations, demand is actually increasing in many developing economies – many of them in Asia – as this is where the biggest growth of car ownership is happening, Agashe explained.
There will also be flourishing demand from segments such as industrial applications, agriculture, and mining as there is a growing trend towards mechanization, Agashe added.
But the focus of many discussions remained the strong fluctuations displayed by crude oil prices in recent months, which could be seen as a positive development for consumers, but a matter of great concern for many producers.
Crude oil futures seesawed during the week, with futures climbing and then slipping mid-week as data revealed larger stockpiles in the U.S. than expected.
ICE Brent Singapore futures were trading at $33.70 per barrel in afternoon sessions on Feb. 22, compared to $33.22 per bbl on Feb. 15.
A number of Asian base oil participants met at the negotiating table following the Lunar New Year holiday, with buying/selling price ideas moving lower for March shipments. A majority of price assessments were adjusted down to reflect discussions and a small number of deals, together with published prices widely recognized as industry benchmarks.
Bright stock on an ex-tank Singapore basis and the 500 neutral grade in the Group II segment, together with the Group III cuts, underwent no revisions.
Within the Group I category, SN150 was assessed down $20-$30 per metric ton at $520/t-$540/t ex-tank Singapore, SN500 was heard down $40/t at $570/t-$590/t, and bright stock remained unchanged at $990/t-$1,010/t.
Group II 150N moved down $20/t to $490/t-$510/t ex-tank Singapore, while the 500N was down by a heftier $40/t at $620/t-$640/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was slightly lower by $10/t-20/t at $410/t-$430/t, while SN500 was down by the same amounts at $420/t-$440/t FOB. Bright stock prices were adjusted down by $30/t at $860/t-$880/t FOB.
In the Group II category, prices for 150N edged down $20/t to $400/t-$430/t FOB Asia, while 500N was holding at $510/t-$530/t FOB Asia.
Group III grades were largely unchanged, with 4 centiStoke and 6 cSt oils mentioned at $850/t-$880/t FOB Asia, and the 8 cSt grade at $600/t-$620/t FOB Asia.
On the shipping front, fresh inquiries were slow to emerge this week, with only a handful of cargoes quoted, but activity was expected to pick up the pace in the next few days. A 2,000-metric ton parcel was mentioned for Daesan, South Korea, to Nantong, China, for Feb. 23-27 shipment. A 3,000-ton lot of two base oil grades was being discussed for Ulsan, South Korea, to Zhenjiang, China, for Feb. 25-28 lifting. A 3,000-ton cargo was also heard for Yokkaichi, Japan, to Tianjin, China, for shipment between the end of February and March 5.
Three COAs were still being floated: one for approximately 2,000 tons to cover Yeosu, South Korea, to Merak, Indonesia; a second for 2,000 tons for Yeosu to Tanjung Priok, Indonesia; and a third for about 1,000 tons for Yeosu to Vietnam.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com
Lubes’n’Greases Publications shall not be liable for commercial decisions based on the contents of this report.