Market uncertainties and a bearish outlook are keeping base oil participants in Asia away from the trading scene, resulting in muted activity.
Fundamentals in the base oil segment seemed to mirror general economic conditions in some of the nations that have been the driving force behind base oil consumption in the region.
The Organization for Economic Cooperation and Development has trimmed annual growth forecasts for most key economies – including those of China and India – on slowing global trade, a contraction in China’s domestic demand, and a slower-than-expected recovery in the eurozone, the group reported on Sep. 16.
According to the OECD, Chinas economic growth is forecast to hover around 6.7 percent this year – lower than previously anticipated – and fall further to 6.5 percent in 2016. India has been characterized by the OECD as the fastest-growing emerging market for the next two years, but its growth forecast has also been revised down to 7.2 percent in 2015 and 7.3 percent in 2016.
The slowdown in economic activity has been affecting Asian base oil markets since earlier this year, but became more pronounced in mid-August when demand weakened, China’s stock market underwent sharp fluctuations, and crude oil prices plummeted.
Despite regional base oil suppliers’ efforts to promote sales by lowering offer levels, consumers remain cautious because there is not clear indication whether base oil prices will stabilize, or continue on a downward trend.
Buyers appear to be limiting their purchases to smaller cargoes to run day-to-day operations, and prefer to avoid accumulating product whose price may go down in a matter of days.
While base stock values have already dropped in recent weeks, crude oil and feedstock prices are still showing a fairly erratic behavior, and consumers feel there might be room for further downward adjustments in base oil pricing, as margins have improved.
Brent crude oil prices fell on Sep. 17, following a short-lived rally during the previous trading sessions. Futures slipped on news of weaker-than- expected Japanese export data, which raised concerns over the prospects for global growth and the effects of the Chinese economic slowdown. This outweighed the bullish impact of a decline in U.S. crude oil stocks, a Reuters report said.
November ICE Brent Singapore futures were hovering at $47.76 per barrel in afternoon trading on Sep. 21, compared to $47.46 per barrel for October futures on Sep. 14.
Aside from upstream price fluctuations, there was also the perception that base oil supply is plentiful, particularly for the light and mid-viscosity grades, which encourages buyers to delay purchases as long as possible as there is little risk of encountering product shortages.
All of these conditions coincide with a seasonal slowdown in demand. Suppliers still hold hopes that requirements might improve before December, although both buyers and sellers will be eager to maintain fairly low inventories at the end of the year in order to avoid paying taxes on idle stocks.
Most base oil grades have undergone downward adjustments in the last couple of weeks, with a major Southeast Asian refiner moving down its September list prices for API Group I and II base oils between United States dollars $20 and $40 per metric ton. The producer’s list prices are often seen as a harbinger of price trends for the month.
According to sources, the producer’s Group I solvent neutral 150 went down $30/ton, while the SN600 cut decreased $20/ton. Bright stock prices were lowered by $40/ton.
The refiner also lowered the price of its Group II 150 neutral and 500N $20/ton.
Other Asian suppliers have also adjusted spot prices down between $10-30/ton since the beginning of the month, depending on the cut. Some cuts, such as bright stock, have seen even heftier decreases.
In India, there have been competitive offers of Middle Eastern material as there is a glut of product in that region, with local demand said to be lackluster. As a result, and given slightly stronger buying interest from Indian importers, Middle East suppliers have turned their attention to that country, but were heard to have adjusted prices down by around $20/ton on Group I cuts in order to be able to attract business.
In terms of production developments that may affect regional supply, it was heard that a number of base oil plants in China have been running at reduced operating rates due to weak market conditions, some of these plants are Sinopec subsidiaries. It was heard that most of the base stock supplied for Sinopec’s finished lubricants output will be produced at the Beijing Yanshan and Maoming base oil facilities.
Price assessments in Asia have undergone a few downward adjustments to reflect current discussion levels, but there were few transactions reported.
On an ex-tank Singapore basis, Group I SN150 prices were heard at $600/t-$620/t, and SN500 was assessed at $760/t-$790/t. Bright stock was holding at $1,050/t-$1,070/t.
On an FOB Asia basis, Group I SN150 was revised down by $10/t at $490/t-$510/t. SN500 was unchanged at $660/t-$680/t FOB, and bright stock was holding at $980/t-$1,010/t FOB.
Within the Group II category, prices for 150N were adjusted down by $10/t to $500/t-$520/t FOB Asia. Prices for 500N were unchanged at $710/t-$730/t FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt oils were holding at $870/t-$890/t FOB Asia, while the 8 cSt grade was steady at $640/t-$660/t FOB Asia.
On the shipping front, there was an ebb in inquiries compared to the previous weeks, with most quotes centering on shipments out of South Korea. A 2,400-metric ton cargo made up of four grades was mentioned for Onsan to Yingkou, China, for September or early November dates.
A 3,500-ton lot of two grades was likely to be shipped from Onsan to Sharjah, United Arab Emirates, in late Sep. A 3,300-ton parcel was still being discussed for Yeosu or Ulsan to Chennai, India, for Sep. 20-Oct.10 lifting. A 1,750-ton cargo was also on the table for Yeosu or Ulsan to Mumbai, India, for the same dates, to be possibly combined with another cargo. A 2,000-ton lot was being worked on for Yeosu to Nantong, China, for Sep. 21-28 shipment. A 1,000-ton parcel was likely to make its way from Yeosu to Ho Chi Minh, Vietnam, between Oct. 1-5.
Lastly, a 1,400-ton cargo of four grades was quoted for Onsan to Dongguan-Shui Dong, China, for any Sep. dates.
Gabriela Wheeler can be reached directly atgabriela@LubesnGreases.com