Asia base oil market participants were eagerly awaiting the New Years holiday, but were less excited about prospects in 2014, as it was expected to be a difficult year given the additional product slated to be introduced into the global supply system.
While in many cases, the added base stock will be used in the producers downstream lubricants plants, there is still concern that a large portion of the new production will have to be placed among existing consumers and that this will lead to competitive activity among suppliers, both within and outside their respective regions.
In Asia, the joint venture between Hyundai Oilbank and Shell is scheduled to start up a 650,000-metric ton per year API Group II/III base oil unit in Daesan, South Korea, in the second half of 2014.
Also in Asia, Sinopec Maoming is expected to start up a Group II plant with a capacity to produce 200,000 tons of base oil in Guangdong, China, in 2014.
Capacity expansions in other regions could directly or indirectly impact the supply/demand balance in Asia as most of the producers will use the additional product to feed their global supply network.
In the Middle East, Abu Dhabi National Oil Co. (ADNOC) is expected to introduce 100,000 tons/year of Group II base oils and 500,000 tons/year of Group III cuts from its new plant in Ruwais, United Arab Emirates, in the first half of 2014, although a status update of the operation could not be obtained. Takreer, a subsidiary of ADNOC, will supply the feedstock and operate the facility. Finlands Neste had originally been expected to handle the sales and marketing of the base oil, but the cooperation agreement with ADNOC has been dissolved, according to a statement on Nestes website.
In Europe, a joint venture between South Koreas SK Lubricants and Spains Repsol is expected to start up a 13,300 barrels per day Group III base oil plant in Cartagena, Spain, in the second half of 2014.
There were also plans by Rosneft to bring a new 8,000 b/d Group II/III plant on line in Novo-Kuibyshevsk, Russia, in 2014.
Finally, in the U.S., Chevrons 25,000 b/d Group II plant in Pascagoula, Miss., will be coming on stream in late Q1 2014.
The Asian market had already started to show some length in the last quarter of the year, as demand from downstream segments experienced a seasonal slowdown.
At the same time, most base oil plants were running at full rates, leading to abundant inventories. A majority of producers who had scheduled turnarounds during the year had completed their shutdowns by the third quarter and were able to rebuild stocks by November/December.
The drive to reduce stocks ahead of Dec. 31 because of tax implications prompted many suppliers to find a home for their product through spot sales, leading to a softening of base oil prices as sellers tried to entice buyers with attractive offers.
Sources acknowledged that December and some early January business had been finalized at decreases between $10 and $30 per ton from late November and early December prices, namely in Southeast Asia, where supply was outpacing demand.
Similarly, Northeast Asian counterparts said that suppliers had lowered their offers, but buyers were also generally cautious about acquiring product because of year-end inventory concerns.
In China, demand was said to have remained healthier than in other countries, but a slowdown was evident there as well.
Traders were heard to be holding quite a few cargoes in early December and appeared eager to sell. Buyers, aware of the pressure suppliers and traders were under, pushed for lower prices, and spot prices edged down.
Parcels of Group II 150N were heard to be available at around $1050/ton FOB Asia, while 500N was mentioned near $1100/ton FOB Asia. These offers failed to attract many takers, however, as buyers bids were around $20/ton below these levels.
Despite the prevailing downward pressure, prices in Asia were assessed as largely steady this week on subdued trading. In the Group I segment, SN150 was holding 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 assessed 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 centiStoke and 6 cSt, and $1010-$1060/t FOB Asia for the 8 cSt cut.
Looking forward into January, there are opposing opinions about demand in China ahead of the Lunar New Year holidays celebrated during Jan. 31-Feb. 6; some expect demand to dwindle because many downstream manufacturing facilities typically shut down operations during the spring festival. Others maintain that Chinese consumers will come back to the market in early January to replenish inventories, as stocks have been depleted in the run-up to the end of the year.
A Taiwanese supplier expects to ship at least 10,000 tons more of base oil to China in January compared to December, when the producer moved a total of 40,000 tons.
Imports of Russian base oils constitute another element that may play a role on Chinese Group I pricing in January. Trader sources said that a Russian supplier is expected to ship significantly higher amounts of Group I cuts to China in January as compared with December.
Meanwhile, some Northeast Asian suppliers are hoping that demand in India picks up in the coming weeks. Indian inventories have been on the lean side since September, when an acute Indian rupee depreciation prevented many buyers from securing imported spot base oil and limited their supply to contract cargoes and domestic availability.
A Northeast Asian supplier said it had already sold 6,000-7,000 tons of Group II cuts into India for January shipment at similar prices to those seen in December, although the supplier hoped to sell further cargoes at slightly higher prices.
The supplier expected prices of high viscosity grades to continue under downward pressure in Asia for a while, while low-vis cuts, which are currently in tight supply in the region, could see a small upward adjustment, according to the supplier. The tightening is due to seasonal patterns, the seller explained, as the lighter grades see greater demand during the winter months.
A second supplier also expressed hopes that prices could be revised up by at least $10/ton in January, but this remained to be seen.
Producers underscored that margins were thin, while crude oil and feedstock fuel oil and gas oil prices were still high. As a result, several base oil manufacturers mulled possible production cutbacks to attain a more balanced base oil market scenario, avoid selling at a loss, and prevent further price erosion.
On the shipping front, inquiries have petered out, but were expected to pick up the pace come January. A 3,000-metric ton parcel composed of two grades was being finalized for shipment from Rayong to Nantong during end Dec.-early Jan. A 1,000-ton lot was being worked on from Ulsan to Zhuhai during Jan. 4-8. A 1,700-ton cargo of two base oil grades was likely to ship from Onsan to Taicang in early January.
Upstream, February 2014 ICE Brent Singapore futures were trading at $112.42 per barrel during the Asian trading day on Dec. 30, compared with numbers at $111.84 per barrel on Dec. 23.
Gabriela Wheeler, based in Japan, can be reached directly atGabriela@LNGpublishing.com.
Beginning next week, her Asia Base Oil Price Report will no longer appear in Lube Report, but instead will appear in our new sister publication Lube Report Asia.
