Asia base oil market participants were wrapping up business ahead of the year-end holidays, with some holding an optimistic view about prospects in the New Year, and others worrying about issues such as increased supply and softening prices.
Buyers and sellers agreed that current base oil prices were exposed to downward pressure because of improved availability, following the conclusion of several plant turnarounds earlier in the year, coupled with a decline in demand, which is characteristic of the fourth quarter.
December and some early January transactions have been concluded at decreases between $10 and $30 per ton from late November and early December deals, sources said. This was particularly evident in Southeast Asia, where supply was deemed plentiful and demand from the lubricants business had slowed down.
Likewise, in Northeast Asia, Taiwanese buyers said that they had seen lower offers in the market, as suppliers were striving to reduce inventories ahead of the year-end tax reviews. Buyers, at the same time, have been careful about securing only small cargoes because they, too, were concerned about year-end inventories and tax issues.
Looking forward into 2014, the additional capacity expected to come into the global market from projects such as the new Chevron API Group II plant in Pascagoula in the U.S., and the new Hyundai Oil Bank-Shell Group III plant in Daesan, South Korea, was indeed a matter of great concern to producers, who expected base oil availability to surpass demand, at least in the short term.
In the more optimistic camp, some suppliers actually hoped that base oil demand would improve in January, and that moderate increases could be achieved.
A Northeast Asian supplier said that it had not yet finalized any January deals, and that it was considering the possibility of lifting offers by at least $10/ton as suppliers tried to recover some of the ground lost in December.
Producers said that crude oil and feedstock prices remained firm and there was a need to improve margins. An uptick in demand from China ahead of the Lunar New Year festival, when buyers like to stock up for the busy spring production season, was expected to offer some support to suppliers intentions.
In the meantime, Chinese buying activity was said to have slowed down, although business was deemed slightly healthier than in other countries during the month of December.
In fact, a Taiwanese producer was able to sell increased volumes of Group II product to China during December as compared with November. The supplier placed slightly more than 10,000 metric tons of spot material into China in December, from a total of about 40,000 tons being shipped to Chinese customers during the month. The same supplier is expected to ship even greater quantities of around 50,000 tons in January despite the Lunar New Year holidays at the end of the month. Sources said that the supplier enjoyed the advantage of proximity to its Chinese customers, and was therefore able to offer a much more competitive price. The supplier was heard to have sold some January cargoes of 150N at close to $1,040-$1,050/ton FOB Asia and 500N at $1,110-$1,120/ton FOB Asia.
In general terms, prices in Asia were assessed as largely steady, after having experienced a moderate downward revision earlier in the month. In the Group I segment, SN150 was assessed at $920-$970/t FOB Asia, SN500 at $1020-$1050/t FOB Asia, and bright stock at $1130-$1180/t FOB Asia.
Group II material was heard at $980-$1050/t FOB Asia for 150N, and at $1100-$1140/t FOB Asia for 500N.
Group III prices were mentioned at $1030-$1080/t FOB Asia for 4 cSt and 6 cSt, and $1010-$1060/t FOB Asia for the 8 cSt cut.
In production, Taiwans CPC-Shell Lubricants is still evaluating whether it will restart its shuttered Group I low-viscosity base oil production train in Kaohsiung. The 120,000 metric ton per year API Group I low-vis production line, which manufactures SN150, was shut down last June for a routine turnaround and has not been restarted due to economic reasons, sources said. If market conditions improve in the near future, however, CPC-Shell will restart the low-vis train, a company source said.
Rumors pointed to the possibility that CPC-Shell would be closing the low-vis line permanently, ahead of the scheduled decommissioning of the entire CPC Corps Kaohsiung refinery in 2015.
CPC also operates a 130,000-ton/year high-viscosity SN500 and bright stock line at the same location, which is running at normal rates.
In China, Sinopec Yanshan Co. likely will not start up its 240,000- ton/year Group II base oils plant in Beijing until mid-February 2014, market sources said. The company delayed the restart from an original date in early November.
On the shipping front, movements in the region have dwindled somewhat, but a few enquiries surfaced during the week. A 1,700-metric ton cargo of two base oil grades was being discussed for Onsan to Taicang for end of December shipment, and a smaller 1,500-ton two-grade lot was in the market for Ulsan or Yosu to Jiangyin, also for late December lifting. A 3,000-ton parcel was likely to be shipped from Ulsan or Yosu to Koh Si Chang on a prompt basis. A 1,000-ton lot was likely to be shipped from Ulsan to Zhuhai during Jan. 4-8. Finally, a 3,000-ton parcel composed of two grades was being worked on for Rayong to Nantong for end Dec.-early Jan. lifting.
Upstream, February 2014 ICE Brent Singapore futures were trading at $111.84 per barrel during the Asian trading day on Dec. 23, compared with numbers at $108.94 per barrel on Dec. 17.
Gabriela Wheeler, based in Japan, can be reached directly atGabriela@LNGpublishing.com.
