Asias base oil market continued to experience snug supply, improved demand and firm feedstock prices that have helped raise prices on a number of grades.
Buyers in Northeast Asia have been on the lookout for spot cargoes of API Group II heavy-viscosity oils to replenish low inventories, given that demand from downstream finished lubricants markets has picked up in the last couple of months.
However, spot cargoes are difficult to locate because most suppliers have limited spot volumes to offer. This is partly because plant operators have run plants at optimum to reduced rates since mid-2015 due poor margins, and stocks have been kept at fairly lean levels.
Furthermore, recent and upcoming turnarounds are limiting spot availability in the region even further.
Formosa Petrochemical in Taiwan is poised to start a two-month routine turnaround at its Mailiao plant in June. The plant can produce 600,000 metric tons per year of Group II oils, including 150N and 500N, according to LubesnGreases Global Guide to Base Oil Refining.
The producer typically ships large quantities of base oils to China, but it has reduced its shipments over the last few months because it has been preparing inventories to cover contractual obligations as much as possible during the outage.
Spot cargoes will not be shipped to China in May and volumes sold under contract have also been cut back.
Chinese importers have resorted to securing Group II cargoes in the U.S. and Europe, with some market players reporting that spot availability has tightened in the U.S. as a result.
Sources said that significant quantities bound for China are being shipped from Port Arthur and other ports on the U.S. Gulf. This tightening has also contributed to posted price increases in the domestic U.S. market, sources added.
Meanwhile, Asian buyers have also started to use Group I cuts to replace Group II grades in those applications where this is possible, as Group I cuts appear more available, but supply of these grades was said to be tightening as well.
In China, another producer is also going to start a turnaround in the third quarter. It was heard that Sinopec Nanyang will be shutting down its 47,000 t/y Group I unit in Nanyang, Henan province, for the month of August. However, it appears that the plants base oil production is generally considered to be off-spec.
At the same time, Sinopec Maoming is expected to complete its Group II expansion in Maoming, Guangdong province, at some time this month, but it is not clear when the product will be commercially available. The plants capacity is anticipated to be 400,000 t/y, a source familiar with the companys operations said.
While many market players were concerned about possible product shortages, others were of the opinion that the tightness might start to ease in July or August, once Formosa is back on stream and demand typically starts to taper off as manufacturers begin to wrap up the summer production season.
Spot prices were stable to firm this week, with offers edging up for a number of grades on limited availability and firm feedstock prices. However, given the tight spot supply, there were few deals reported.
The Group I solvent neutral 150 cut edged up by $10/t to $540/t-$560/t ex-tank Singapore, and SN500 was also up by $10/t at $610/t-$630/t. Bright stock was similarly up by $10/t at $1,020/t-$1,040/t ex-tank Singapore.
The Group II 150N cut was assessed higher by $10/t at $520/t-$540/t ex-tank Singapore, and the 500N was up by $20/t at $660/t-$690/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 inched up by $10/t to $450/t-$470/t; the SN500 moved up by $10/t-$20/t to $540/t-$560/t FOB. Bright stock was steady at $900/t-$930/t FOB.
In the Group II category, the 150 neutral cut was assessed up by $10/t at $500/t-$530/t FOB Asia, while the 500N/600N inched up $10/t to $650/t-$680/t FOB Asia.
In the Group III tier, the 4 centiStoke and 6 cSt oils were holding at $860/t-$890/t FOB Asia, and the 8 cSt grade was steady at $610/t-$630/t FOB Asia.
Upstream, crude oil prices jumped more than three percent early in the week after the U.S. government reported domestic oil inventories had dropped unexpectedly for the first time since March, adding to concerns over supply disruptions in Canada and Nigeria.
Wildfires have caused output in an oil-producing region in Canada to be suspended, and damage to an Exxon Mobil-operated pipeline has reduced supplies of Nigerias benchmark crude oil.
ICE Brent Singapore futures closed at $48.67 per barrel in afternoon sessions on May 16, compared to $45.89 per bbl on May 9.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreases Publications shall not be liable for commercial decisions based on the contents of this report.