With no significant developments expected to derail the Asian base oil market in September, suppliers have set their sights on October business, but are a bit concerned about the prospects.
Sources said that September business has been fairly lackluster so far, and sellers were worried that October would be even weaker in terms of orders, and that prices would be exposed to downward pressure as availability is expected to improve.
The supply/demand balance has been fairly tight in Asia for the past several months on account of several plant turnarounds, coupled with healthy demand, which has supported stable-to-firm pricing. However, as regional facilities have come back on stream or are about to resume production, the tightness was expected to ease.
Formosas API Group II plant in Mailiao, Taiwan, is expected to restart production at the end of September, following an annual turnaround which started in early August. The producer does not anticipate any spot availability until at least mid-October. Several other facilities in Taiwan and South Korea resumed production recently, also after undergoing routine maintenance.
At the same time, suppliers are under serious pressure from the feedstock side, as crude oil and vacuum gas oil prices have risen considerably in the last couple of months. However, base oil prices have not kept up with the increases, producers said.
Base stock suppliers have tried to implement increases for September contract and spot transactions, and have been successful to some extent, but the attained increases are not deemed sufficient to offset the rise in feedstock prices, particularly if crude oil continues its ascent.
A number of sellers said they had been able to achieve increases between $10 per ton to $20/ton for September parcels. Prices for the heavy-vis cuts edged up by a larger amount because they are in a tighter position than the lighter grades, suppliers said.
A Group II/III supplier said that the company had increased the price for September contract shipments by $10/ton and that buyers had accepted the steeper prices as they recognized the high crude oil and derivatives costs.
A second producer said it had been able to implement increases in August and was therefore keeping prices unchanged for most September deals, although there may be some room for an increase in the second half of the month, the supplier added. The seller underscored that despite the hikes, August had been a very good month in terms of orders, and September had been fairly steady so far.
A buyer concurred that most of the September offers it had received were at the same price levels as in August, and explained that consumers were unable to absorb increases because it was difficult to transfer the hikes to downstream applications.
Some suppliers were optimistic that demand would pick up in late September or early October, particularly in China, as finished lubricants producers gear up for the busy oil change season when heavier winter formulations are needed. Others were somewhat skeptical that the situation would change much, because the recent slowdown was not specifically linked to the base oils sector, but was rooted in macroeconomic woes.
Suppliers said that traders in China were reluctant to secure base oil cargoes ahead of a potential demand increase in October, as they expected activity in the finished lubricants segment to be weaker than in previous years.
Aside from uncertainties about the economic situation and global political tensions, the autumn holiday celebrated in China during Sept. 19-21 also placed a damper on demand, as most buyers preferred not to carry high inventories ahead of the celebrations.
Another weak link in the region has been India, where demand has seen a marked slowdown on account of a weakening of the rupee, just as the monsoon season was coming to an end and demand had been expected to rise.
A Southeast Asian supplier conceded that Indian inquiries had dropped, but was surprised to hear some interest for a 4,000-ton combination cargo of Group II grades for October shipment. It was not heard whether a deal had been concluded by the publishing deadline, but the buyer appeared to have also inquired with a Taiwanese supplier.
At the same time, the Southeast Asian supplier was heard to have offered some cargoes to China. However, buyers had been reluctant to accept its price indication, trader sources said.
A second Southeast Asian producer was understood to have offered a Group I solvent neutral 500 and bright stock cargo into China, but encountered only lukewarm buying interest.
Base oil prices were assessed stable-to-firm, with Group I cuts mentioned at $985-$1030/t FOB Asia for SN150, $1045-$1080/t FOB for SN500, and $1145-$1190/t FOB for bright stock, reflecting a $5-$10/ton increase from a week ago.
Group II material was similarly assessed higher at $1005-$1070/t FOB northeast Asia for 150N, showing a $5-$10/ton hike, and at $1090-$1160/t FOB northeast Asia for 500N, which reflects a $10/ton increase.
Group III cuts were heard within a price range of $1020-$1080/t FOB Asia for 4 centiStoke, 6 cSt and 8 cSt grades, showing a $10-20/ton increase.
On an ex-tank Singapore basis, Group I prices were pegged near $1045-$1110/t for SN150, up by $5-$10/t from a week ago. SN500 material was assessed at $1090-$1190/t, showing a $10/t increase, and bright stock was heard at $1190-$1300/t, also up by $10/t. Prices varied according to volumes, producer and contract stipulations.
Meanwhile, it appears that the freight market has awakened from its brief slumber a week ago, with a number of inquiries emerging this week, particularly for movements out of South Korea. A 500-metric ton cargo was being discussed to cover Ulsan or Yosu to Taichung between Sept. 17 and Sept. 30. A second 1,000-ton lot was on the table for Onsan to Haiphong for lifting during Sept. 24-29. A 2,000-ton cargo of one to two grades was expected to be shipped from Onsan to Mersin in September. About 1,000 tons were discussed for Onsan to Tianjin for lifting between Sept. 10 and Sept. 15, and delivery during Sept. 15-19. Another 2,500 tons of two grades were likely to be moved from Yosu to Tianjin in the second half of September.
Participants were also checking freight indications for a 4,000 to 5,000-ton parcel of two to three grades to be shipped from Mailiao to Mumbai between Oct. 15 and Oct. 20. A 2,000-3,000-ton lot was being discussed for Hamriyah to Singapore between Sept. 10 and Sept. 15. A second 2,000-ton parcel was heard on the market for Hamriyah to Nantong or Beihai for prompt shipment.
Upstream, October ICE Brent Singapore futures were trading at $113.03/bbl at the close of the Asian trading day on Sept. 10, compared to numbers at $114.55/bbl on Sept. 3.
Gabriela Wheeler, based in Japan, can be reached directly at Gabriela@LNGpublishing.com.