Asia Base Oil Price Report

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Tight market conditions and thin margins have triggered price increases for term shipments in Southeast Asia, with a key Singapore-based refiner raising its ex-tank Singapore API Group I and II prices by $20/metric ton, effective June 7.

The producer will increase its Group I SN150, SN600 and bright stock, and its Group II 150N and 500N cuts by $20/metric ton because an earlier increase of $30/t, implemented on May 8, was not deemed sufficient to offset production costs, according to market sources.

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The increases were also supported by limited availability given recent and upcoming turnarounds in the region. An Indonesian Group I plant remains off-line since mid-May while undergoing a maintenance program, and is not expected to be restarted until mid-June, sources said. A couple of South Korean units have only recently restarted operations following turnarounds.

In Taiwan, Chinese Petroleum Corp.-Shell is preparing to shut down its 250,000 t/y Group I plant in Kaohsiung, Taiwan, for a month-long maintenance program, while Formosa Petrochemical will be shutting down its 600,000 t/y Group II plant in Mailiao for 60 days, starting in August. There were also reports that further turnarounds may be scheduled in the second half of the year.

At least two Korean suppliers said that they were unable to participate in the spot market because of a lack of extra supply after their contractual obligations were met. Formosa has started to build inventories ahead of its turnaround in August and is not able to entertain any spot sales. This offered additional support to higher spot price ideas from several sellers, although they conceded that spot prices were not moving up at the same pace as term prices.

A Northeast Asian producer said it had been able to achieve increases of $50/tonne for small May term shipments into Southeast Asia and was hoping to implement further hikes for June shipments, although buyers were resisting the steeper numbers.

A Southeast Asian buyer issued a purchase tender for 3,000 tonnes of Group II 500N for July shipment this week, but the results were not immediately available.

Group II cuts appeared to be fairly tight, but supply levels could ease once the Group II converted production train at the SK-JX Nippon facility in Ulsan, South Korea, starts commercial output. The unit, which will produce heavy 500/600N cuts only, is due to come on line within the next thirty days, but is not expected to be run at full rates immediately, a company source said. While some suppliers were concerned that the added production could place downward pressure on prices, most of the output appears to have already been placed with key customers, mainly in China, sources added. However, there was talk that the start-up might be delayed, to judge by the emergence of some Group II spot inquiries for late June/July cargoes reported by other Northeast Asian suppliers.

In China, prices have been fairly steady, although market fundamentals remain bearish on account of a slowdown in demand, particularly for imports. Given plentiful availability of local product, buying interest for imported base oils has dwindled, although a Korean supplier will be shipping more product in June than in May. This was not in response to improved demand in China, the supplier clarified, but rather an attempt to make up for reduced quantities shipped in May while the suppliers plant was undergoing a turnaround.

A Russian suppliers June offers into China of its Group I base oils will be kept at unchanged levels from May at around $900/t DAF in order to attract business, according to trader sources, although its June exports to China may be limited due to a turnaround at the producers facilities during May.

In India, market activity has been mixed, with demand from applications related to the automotive industry slowing down because of the onset of the monsoon season, while industrial applications were still faring well, a supplier said. However, buyers were resisting price increases for imports, despite domestic price hikes implemented by a major local producer.

The producer raised its Group I prices by an average of 1.5 rupees/liter, according to sources. The increase was driven by the higher ex-tank Singapore prices, as the suppliers numbers are based on import parity. Supply was deemed sufficient to meet current demand in India, with no production issues noted.

On the shipping front, a few enquiries emerged during the week. A combined 1,500 metric tons plus 500 tons cargo of two base oils grades was being worked on for Ulsan to Sharjah for June 24-30 lifting, while a second 2,000 ton parcel was slated to cover Ulsan-United Arab Emirates on June 1-7. A 1,500 ton cargo of two grades was also expected to move from Ulsan or Yosu to Merak, while an inquiry for 1,700 tons of two grades of base oils also surfaced for Yosu-Taichung, both cargoes for June lifting. A 1,500 ton SN500 cargo was expected to be loaded from Sriracha to Ulsan on June 5-10.

Upstream, July Brent settled in Asia at $101.61/bbl on June 4, compared to $103.83/bbl on May 28. Futures prices fell on data showing that the Chinese economy is not growing as fast as expected and on speculation that crude supply might outstrip demand in coming weeks.

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

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