Asia Base Oil Price Report

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South Korean base oil producer S-Oil announced that it plans to increase Ultra-S base oil capacity by another 3,000 barrels per day by October 2013, and that the project remains on target.

The capacity expansion will be achieved through the revamping of its refinery in Onsan and will include added capacity for API Group II+ cuts (Ultra-S 2, 3 or 2/3 cSt) and Group III (Ultra-S 4, 6, 8 or 4/6/8 cSt).

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S-OILs current base oil capacity is estimated at 20,500 b/d for Group I/II and 15,000 b/d for Group III base stocks. The expansion would raise the producers total capacity to about 38,500 b/d. The incremental volumes are expected to be supplied to a worldwide network of customers, as the producer anticipates global demand for high quality base oils to grow in line with increasingly stringent technical requirements.

Despite the recent announcements about additional capacity expected to come on stream in Asia over the next two years – including ExxonMobils plan to expand Group II capacity in Singapore – base oil prices have remained largely steady in the last few weeks. In the Group I segment, steady demand and snug market conditions have ensured that prices remain generally unchanged since mid-June.

In the Group II category, prices have also been reported as largely stable to firm, supported by a tight supply scenario. While demand has shown a seasonal slowdown, the lower requirements have been offset by a number of production outages in Asia in recent months, coupled with upcoming turnarounds. Even the added Group II capacity becoming available in South Korea in July was anticipated to have a minor impact on market conditions, as the additional product was heard to have already been sold to term customers in China. SK Lubricants reconfigured 300,000 ton/year train in Ulsan was slated to start production of 500N in late June, with commercial product expected to be available in the second half of July.

Demand in China has been far from stellar, sources conceded, but requirements are slowly getting better, a northeast Asian supplier said. Domestic supplies were deemed sufficient to cover current demand levels, and there has been less need to import base oils, sources added, which has been a positive factor at a time when overall availabilities are still deemed tight in Asia.

Market participants have been eyeing the supply situation within China with some concern, however, as local producer Sinopec will be reducing supplies by slightly over 30 percent in July, mainly affecting Group I availability, sources said. The reduction was said to be the result of base oil production cutbacks at the Sinopec Jingmen, Sinopec Beijing Yanshan and Sinopec Henan Oilfield plants. The reason for the cutbacks was not readily apparent, although sources speculated that the supplier would be producing more transportation fuels, to the detriment of base oil output.

At the same time, it was heard that a supplier in China was offering 3,000 tons of Group II 150N for export at below $1,000/ton, but it could not be confirmed whether the supplier had found any takers.

The tight market conditions also observed in southeast Asia have prompted suppliers to consider increases for spot transactions, with a northeast Asia supplier hoping to lift prices by $10-$30/ton for July transactions. A couple of sellers also said they were trying to increase prices into India, particularly for the heavy-vis cuts, but resistance has been high given the recent depreciation of the rupee and a slowdown in product requirements because of logistical problems caused by the monsoons.

In terms of pricing, participants said that the Group I ex-tank Singapore price spreads were largely steady, with SN150 assessed at $1020-$1080/t, SN500 at $1060-$1160/t and bright stock at $1160-$1260/t this week.

On an FOB Asia basis, prices were mentioned at $940-$960/t for SN150, $990-$1030/t for SN500 and $1090-$1140/t for bright stock.

Regarding Group II material, prices were heard at around $970-$1030/t FOB NE Asia for 150N and at $1060-$1110/t FOB NE Asia for 500N.

A slightly oversupplied market continued to exert downward pressure on Group III spot prices, with numbers assessed at $1000-$1050/t FOB Asia range for 4 cSt, 6 cSt and 8 cSt cuts, although some indications continued to be mentioned at slightly higher levels for small-volume transactions.

In production news, S-Oil shut down its 1 million tons per year Group II facilities in Onsan, South Korea, the first week of July for routine maintenance. The units are likely to be off-line for 30 to 40 days. The producer had completed a turnaround at its Group III unit in early May.

In Taiwan, Chinese Petroleum Corp.-Shell was expected to restart its Group I production lines at Kaohsiung last week, following yearly maintenance. Most term obligations were being met as scheduled, as the supplier built stocks ahead of the outage.

Formosa plans to shut down its 600,000 tons per year Group II facility in Mailiao, Taiwan, in August and September for a routine turnaround.

Hainan Handi in China will be shutting down its 300,000 tons per year Group II plant for three months, starting in July. Industry sources said the shutdown was due to feedstock supply issues, but this could not be confirmed.

On the shipping front, activity seems to have picked up, with several more inquiries noted than in the last couple of weeks in Asia. A 2,250-metric ton cargo of two base oil grades was expected to be shipped from Ulsan or Yosu to Ko Sichang for July dates. A 2,000-ton lot of two grades was likely to move from Yosu to Tianjin during July 10-20. A total of 5,700 tons of three grades were being worked on from Yosu to Mumbai during July 20-25, while a second parcel of four grades totaling 6,500 tons was being considered for Yosu to Mumbai for the same dates. A 2,000-ton parcel consisting of two grades was expected to ship from Yosu to Tianjin during July 10-20. The dates on a 600-ton parcel of base oil expected to be shipped from Onsan to Singapore were moved back to July 15-25. A 1,000-ton cargo of 600N was still being discussed to cover Ulsan to Merak between July 15 and July 25.

In related market news, China cut domestic fuel prices by 75 to 80 Chinese yuan per ton, or approximately $12/ton from July 6, according to a report from the countrys National Development and Reform Commission.

Upstream, August Brent settled in Asia at $107.18/bbl on July 9, compared to numbers at $103.14/bbl on July 2.

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

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