Asia Base Oil Price Report

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Asia market participants were somewhat surprised to learn that a key Singapore-based refiner would be lifting ex-tank Singapore prices for its API Group I and II grades, effective June 7 – the second increase by the same supplier since the beginning of May.

The producer will raise its Group I SN150, SN600 and bright stock, and its Group II 150N and 500N cuts by $20/metric ton on prevailing tight market conditions, according to buyers.

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The first hike this month was implemented on May 8 and called for a $30/t increase for all of the producers base oils grades, with the exception of its Group I SN150.

A few participants said that there was no real justification for an increase, as market conditions have been bearish, with downward price pressure noted on account of a slowdown in demand.

However, other players pointed out that the supply/demand balance has been tight in the last two months, particularly in Southeast Asia, on the back of a number of plant turnarounds in the region. In Indonesia, a producers Group I plant was taken off-line in mid-May for annual maintenance and is not expected to be restarted until mid-June. A couple of South Korean units have only recently completed turnarounds, and two Taiwanese plants will be taken off-line in June and August, respectively.

Additionally, suppliers said that buying activity had remained brisk, but conceded that the purchased volumes had been smaller as consumers prefer to hold low inventories on concerns that base oils prices would decline in the short term, once regional plants resume production.

Suppliers also underscored that there have been numerous inquiries for spot cargoes in Southeast Asia, but some buyers had been unable to secure product because of snug conditions. Some term customers have requested additional cargoes beyond the quantities specified under contract, but at least one Northeast Asian supplier has been unable to meet the added demand. The supplier said that it may even have to place some shipments under allocation in June because of a recent turnaround at its base oils facilities.

The producer added that it had been able to achieve increases of around $30-$50/t for May shipments to Southeast Asia because some grades were not readily available. The supplier said that Group II cuts were the tightest and therefore had experienced the most significant price hikes. Selling ideas for 150N were mentioned at $1,100/t FOB Asia and at $1,150-$1,200/t FOB Asia for 500N. The producer is currently finalizing June discussions, with several shipments already concluded.

The market situation was unchanged in China, with demand for imports said to be less robust than expected because of economic uncertainties and the availability of competitively-priced local supply.
A Korean producer said it would be increasing the Group II and III volumes shipped to China by 10 percent in June compared to May. This was because the supplier had trimmed its shipments in May as its plant was undergoing a turnaround. Prices for June cargoes are largely unchanged from the previous month, although discussions are ongoing, sources said.

Some talk was heard about the upcoming start-up of SK Lubricants-JX Nippons new Group III unit in Ulsan, South Korea, in June, with commercial product expected to be available in July. The unit will run at reduced rates and gradually increase production to reach its nameplate capacity of approximately 1.2 million tons/year. Some market observers believed that the added supply would place downward pressure on prices, particularly in China. SK was heard to have approached key Chinese buyers to place its product at very attractive prices.

However, other players said that the market share of Group III base oils was still relatively low in Asia compared to Group I and II, and that the new capacity would not have a huge impact on prices in Asia. A large portion of the additional production will be earmarked for export to Europe and the United States, while part of it will also be shipped to Japan, sources added.

Meanwhile, in India, conditions have turned bearish because of reduced demand during the monsoon season, which starts in early June and will last through August, sources said. While supplies were on the tight side in March and April, availability in May was slightly long and is expected to be even more plentiful in June.

The first signs of a market slowdown were noted as a Northeast Asian supplier lowered its June offers by up to $60/t compared to May, buyers said. A second supplier has also resorted to reducing its prices to entice buyers, but has been unable to attract much buying interest.

In the finished lubricants segment, an Indian supplier expected demand from Europe and Africa to be fairly healthy for the next two to three months, following a somewhat slow month of April.

In terms of base oils pricing, indications for Group I material on an ex-tank Singapore basis were assessed at $1040-$1080/t for SN150, $1100-$1160/t for SN500 and $1190-$1240/t for bright stock this week.

On an FOB Asia basis, prices were mentioned at $950-$980/t for SN150, $1010-$1060/t for SN500 and $1090-$1140/t for bright stock.

Regarding Group II material, prices were assessed at around $970-$1020/t FOB NE Asia for 150N and at $1060-$1110/t FOB NE Asia for 500N, according to sources, although a few higher offers were also heard.

Group III spot prices were pegged within a $1030-$1080/t FOB Asia range for 4 cSt, 6 cSt and 8 cSt cuts, but some indications were mentioned at above $1100/t FOB Asia for small-volume transactions.

In production news, South Koreas S-Oil has restarted its 500,000 tons per year Group III plant in Onsan, following a scheduled 40-day turnaround which commenced on April 14. The plant has been running well, according to company sources.

In China, Handi Sunshine Petchem is expected to start up its 500,000 t/y base oil plant in Hainan province in the second half of 2013.

Sinopec Yanshans 300,000 t/y Group I plant in Beijing was taken off line on April 20 for a 35-day turnaround.

Chinese Petroleum Corp.-Shell is preparing to shut down its 250,000 t/y Group I plant in Kaohsiung, Taiwan, for maintenance in early June, while Formosa Petrochemical will be shutting down its 600,000 t/y Group II plant in Mailiao for 60 days, starting in August.

On the shipping front, there was an inquiry to move 1,000 metric tons of SN500 from Sriracha to Ulsan June 1-10. A second 1,000 ton lube cargo was expected to be shipped from Onsan to Tianjin June 15-20. A 2,000 ton parcel was being discussed for Hong Kong-Mumbai on a prompt basis, while a second 2,000 ton base oil lot was being worked on for Mailiao-Sharjah for mid-June lifting.

Upstream, July Brent settled in Asia at $103.83/bbl on May 28, compared to $104.30/bbl on May 21. Futures prices were lower than the previous week, but moved up from the previous session in afternoon trade on increased tensions in the Middle East.

Gabriela Wheeler, based in Japan, can be reached directly at gabriela@lngpublishing.com.

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