The flow of additional product from the reconfigured SK Lubricants API Group II plant in Korea has so far not had much of an impact on the Asian market. The plant was heard to be running at reduced rates and will likely continue to operate below capacity over the next few months, market sources said.
SKs reconfigured 300,000 ton per year train in Ulsan started production of 500N in late June, with commercial product expected to enter the market over the next few weeks.
Small cargoes from the plant will be shipped to China and India, according to sources, but most of the shipments have been agreed to under term contracts and have not affected spot business, sources added.
Aside from SKs additional base oil volumes, concerns over an oversupplied market and deteriorating spot prices were magnified by last weeks announcement that S-Oil would be bringing its Group II+/III expanded capacity in Onsan on stream in October.
S-Oils additional production is mostly expected to be for the Asian market, although export opportunities to Europe and the U.S. will be considered, depending on the market situation, company sources said.
As far as day-to-day market conditions are concerned, spot prices in Asia were reported as largely stable, despite suppliers intentions to increase pricing for July transactions. Suppliers hoped to lift prices on rising production costs and tight regional supply. Additionally, sources said that this might be one of the last chances for suppliers to achieve increases, as base oil availability is expected to improve once current and upcoming turnarounds are completed by September.
In China, Daqing Refining and Chemical plans to take its 200,000 tons per year Group II plant off-line from early August until early September.
Given the current snug supply conditions and increasing production costs, a northeast Asian producer hoped to raise prices by $10-$30/ton into Southeast Asia in July, but faced stiff resistance, with prices said to have remained at the same levels as in June for Group III small-volume spot cargoes. The supplier said it received several spot inquiries for Group I heavy-vis grades and bright stock, as well as for Group II and Group III cuts, but the producers Group II plant is currently undergoing a turnaround and the supplier is therefore unable to offer any spot cargoes. The producers Group III plant underwent a turnaround earlier this year, which also restricted its spot availability.
A second northeast Asian supplier was also heard to be unable to supply spot cargoes, as it was focusing on meeting contractual obligations.
Suppliers were hoping that curtailed domestic supply in China would lead consumers to seek more foreign base oil volumes, but import activity has been subdued in recent weeks. Local production was deemed adequate to cover most requirements, although term cargoes continue to move regularly from Korea and Taiwan into China. However, a 6 percent tariff is imposed on Korean imports, which partly discourages demand, according to market sources.
At the same time, local producer Sinopec was heard to be reducing supplies by slightly over 30 percent in July, mainly affecting Group I and II availability, sources said, which could drive consumers to look for alternative sources of product. According to sources,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.
There were also lingering concerns about the economic outlook in China; the countrys growth rate has slowed down further, with the second quarter GDP reported at 7.5 percent, down from 7.7 percent in the first quarter, the government’s statistics bureau reported on Monday.
As far as current base oils prices in the Asian market are concerned, participants said that the Group I ex-tank Singapore price ranges were fairly stable, although some softening had been noted at the low end of the spreads, with SN150 assessed at $1010-$1080/t, SN500 at $1060-$1160/t and bright stock at $1160-$1260/t this week. Prices may vary according to volumes and other stipulations.
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.
Group II material was assessed at $970-$1030/t FOB NE Asia for 150N and at $1060-$1110/t FOB NE Asia for 500N.
Group III spot prices were heard at $1000-$1050/t FOB Asia range for 4 cSt, 6 cSt and 8 cSt cuts, although there continued to be downward pressure on prices because of ample availabilities.
On the shipping front, some discussions were taking place to move 3,000 metric tons of two base oil grades from Leixoes to Singapore at the end of July. A 5,000-ton cargo was expected to be shipped from Hamriyah to Vietnam during July 15-20. A 1,350-ton lot of two grades was likely to move from Ulsan to Gebze in August.
Upstream, August Brent settled in Asia at $109.51/bbl on July 16, compared to numbers at $107.18/bbl on July 9.
Gabriela Wheeler, based in Japan, can be reached directly at gabriela@lngpublishing.com.