The current supply and demand imbalance continued to be a matter of concern for Asian base oil suppliers, as this factor stifled prices at a time when producers hoped to implement increases due to the rise in crude oil, raw material, and transportation costs.
While buyers seemed to be well aware of the pressure emanating from the feedstocks side -with crude oil trading at five-month highs – they were also comfortable with the availability of most base stock grades, as there were no shortages reported and supply appeared to be rather plentiful, despite recent plant outages.
One of the facilities that was heard to be undergoing a turnaround was the S-Oil plant in Onsan, South Korea. The turnaround started in March and was expected to last through April. The plant can produce over 2 million metric tons per year of API Group II and Group III base oils, but it appears only production of Group III was affected by the outage.
Despite the turnaround, Group III availability was deemed ample in Asia, and South Korean exports into other regions such as Europe and United States continued unabated, according to sources.
A second regional producer was reported to have started an extended turnaround this week. Japanese refiner JXTG Nippon Oil & Energy was heard to have started a maintenance program at one of its two base oil plants in Mizushima. The two units have a total capacity of 392,000 t/y of Group I and 19,000 t/y of Group III base oils, according to Lubes’n’Greases Global Guide to Base Oil Refining. The unit undergoing maintenance was anticipated to remain off-line for close to three months, but this could not be confirmed with the producer directly.
Demand in Japan was said to be largely flat, but suppliers remained hopeful that warmer-than-usual weather over the next couple of months would result in increased consumption of finished lubricants from the agricultural and automotive segments.
A number of new plants have also come on stream recently in China, and there appears to be sufficient supply in the country to meet current demand levels. Imports from Russia have fallen in recent months, but there is a steady influx of product from Taiwan, South Korea and the Middle East.
Taiwanese producer Formosa Petrochemical typically exports large volumes of Group II oils to China under contract and for spot sales, and has concluded a shipment for April delivery. Formosa’s priority is to meet product needs in Taiwan, and the producer then exports the rest of its production. It was also heard that Formosa had closed a sales tender for a combination cargo of Group II base oils for late-May shipment this week.
Exports from a Middle Eastern plant, which had been absent from the trading scene in the previous two months due to an unexpected production outage, appeared to have resumed. There was speculation that the Luberef plant in Yanbu’al Bahr, Saudi Arabia, may have restarted as cargoes moving to several destinations in the Middle East and India were spotted this week. The upgraded and expanded plant can produce 175,000 t/y of Group I and 708,000 t/y of Group II base oils.
In India, demand has been less robust than anticipated because of the large quantities of base stocks that were imported in previous months – mainly Group II cuts – while local production was said to be steady. Most recently, some Group I material was heard sold from the U.S. East Coast into the West Coast of India for April loading, contributing to a tightening of Group I grades in the domestic U.S. market.
While India used to receive regular quantities of Group I cuts from Iran, very limited volumes – if any – were heard to be moving into the country via re-exports from other Middle Eastern ports now.
Market activity has softened as buyers remained cautious in the lead-up to India’s massive national election, which began on April 11 and will continue until May 19. The counting of votes will be conducted on May 23 and results announced the same day.
Investors–and in particular, foreign investors–are awaiting clarity on the next government’s reform mandate, CNN.com reported in an online article last week. When the current Prime Minister, Narendra Modi, took office and opened up several sectors including retail, manufacturing and aviation to foreign investment, around $193 billion were committed by global investors including Amazon, Apple, and Walmart. However, recent policies have made it more difficult for some companies to do business in India. As the election approached, the government introduced regulations aimed at helping local business owners in detriment to some foreign companies’ interests, the article explained.
Meanwhile, spot trading in Asia was steady, but slightly less robust than anticipated for this time of the year. Prices were stable-to-firm this week, with ex-tank Singapore assessments notionally adjusted up to reflect market direction and feedstock price pressure, although no confirmed deals were reported. Price ranges on an FOB-Asia basis underwent $5-10/t upward revisions the previous week and are unchanged this week.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade were adjusted up by $10/t at $760-$780/t per metric ton, while SN500 was assessed up by $10/ton at the low end of the range to $770/t-$800/t to bring prices more in line with market discussions. Bright stock was unchanged at $880/t-$900/t, all ex-tank Singapore.
Group II 150 neutral was notionally adjusted up by $10/t at the bottom of the range to $760/t-$790/t, while the 500N was also adjusted up by $10/t at the low end of the spread to $780/t-$810/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was steady at $650/t-$680/t, and the SN500 grade was mentioned at $630/t-$650/t. Bright stock was holding at $780/t-$800/t, FOB Asia.
Group II 150N was assessed at $620/t-$640/t FOB Asia, while the 500N and 600N cuts were near $630/t-$650/t, FOB Asia.
In the Group III segment, the 4 centiStoke grade was heard at $830-$870/t and the 6 cSt was assessed at $840/t-$885/t. The 8 cSt grade was steady at $730/t-$760/t, FOB Asia for fully-approved product.
Upstream, crude oil futures edged lower on Thursday as U.S. inventories remained high, but the OPEC-led production cuts limited the fall. Last year, OPEC and other oil-producing countries agreed to curb crude exports for six months as of January 2019. OPEC plans to meet in June to reevaluate the current production agreement.
Crude numbers continued to receive support from export restrictions on Iranian and Venezuelan oil, but growing U.S. output and uncertainty surrounding the U.S.-China trade war were keeping oil prices from moving higher, analysts said.
Brent June futures were trading at $71.43 per barrel on the London-based ICE Futures Europe exchange on April 18, up from $70.63 on April 11.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.