This weeks activities have been curtailed by the May Day holidays here in Europe. As we approach summer the market is balanced, but with some interesting developments afoot, including moves to bring API Group II material into mainland Europe to compete on price with Group I, as well as new momentum for spot enquiries.
One relatively small mixed cargo of Group I material from Northwest Europe was heard to be sold at the lower end of the spectrum, around $405 per metric ton for the solvent neutrals and around $575/t for a small parcel of bright stock. Bright stock prices have fallen again, and many sellers are willing to negotiate around the $570/t to $585/t level for this grade, with some large parcels available from producers on a prompt basis.
The destination of the cargo above was not revealed, but it could be the Eastern Mediterranean or West Africa. It was also stated that this was a one-off spot cargo which would fill a gap in a term contract.
In the main the spread of prices remains unchanged this week, in the range of $425/t to $475/t, basis FOB, for Group I. A little more availability is showing through, and this could put downward pressure on selling numbers. Producers will fiercely resist this, at least in talking about prices, but depending on inventory levels after start-ups some could capitulate to sell slightly below the levels above.
Interestingly, there have been some moves to bring Group II material into mainland Europe, to compete on price with current Group I grades. With the new ACEA levels looming large, this may be a step to optimisation for certain buyers.
Those buyers are being tough and are encouraging Group II suppliers to come into line with Group I pricing. The lowest Group II prices reported, for the lighter vis grades, are around $620/t basis ex tank. This is a quantum step downwards to gain buyer confidence in the move to Group II and II+ base stocks. The higher vis grades are still maintaining their premia and in some cases are more than $150/t higher than the lighter grades.
Spot enquiries are starting to gain momentum, but many in the market feel that these enquiries are either price checking, or if they come to fruition, then they are replacing some contract business, on which receivers are intentionally defaulting to obtain lower priced material from spot purchasing. Buyers believe that they can save at least $40 to $75/t by adopting this practice.
This activity merely hastens the merger of domestic and spot export prices into one selling level. Since many contracts are unenforceable, mere cushions of comfort for receivers in times of shortage, this activity could ironically cause producers to look at increasing prices if they think demand is spiking. One producer has indicated prices of $480/t for solvent neutrals for these sales.
There is more activity reported in the Middle East Gulf region this week with small imports of Group III material being sought by some of the blenders in the area. Prices are relatively high, since most of the business is delivered in flexitanks or iso-containers, with levels around $850 to $950/t basis CIF Gulf ports.
Although this is small beer compared to the Group I and Group II volumes being supplied into the region, it could mark the start of experimental blending with these grades to move up to another level of finished lubricants. Certainly the demand for higher specification lubricants is growing in this region, particularly in the automotive sector.
West Africa has awakened again, and whilst most of the 11 base oil enquiries heard this week will never actually happen, there are definitely regular buyers in the market to take substantial quantities into the area during May. This could form a drain on availabilities from Europe, although these enquiries are not limited to Europe any more.
Far East suppliers have shown interest in moving material into this region, given the current exceptionally low freights for this direction of trade, and with U.S. sources also being tapped, this could develop into new and interesting trade patterns. With pricing on a delivered basis in the range of $595 to $655/t, basis CFR for Group I solvent neutral grades, and with bright stock at $725/t on the same basis, it is feasible for Far East suppliers from Singapore to send Group II material to compete with these numbers and still maintain satisfactory netbacks for their material. Moreover, whilst these African outlets may be temporary for these producers, they are attractive as long as the local Far East markets are down by some 30 percent over last years published data for base oils off-take.
Ray Masson is director of Pumacrown Ltd., a trader and broker of petroleum products in East Grinstead, U.K. Contact him directly at pumacrown@email.com.