The upsurge in base oil prices appears to be slowing down, but limited spot availability and climbing prices in other regions are still promoting a bullish stance in Asia.
Both suppliers and buyers acknowledged that the supply/demand balance continues to be tight, and that this situation is likely to continue into July, as a major regional producer is starting a turnaround in the next few days.
Taiwanese API Group II base oil producer Formosa Petrochemical Corp. was expected to shut down its 600,000 metric tons per year plant in Mailiao, Taiwan, during the week to complete a routine maintenance program. The turnaround is expected to last two months.
Formosa has suspended spot exports into China and other countries and reduced some of its contractual supply into the domestic market and export destinations. As a result, Chinese importers have had to secure product in other regions such as Europe and the United States at a time when demand in those areas has also flourished and prices have shot up.
Meanwhile, in Southeast Asia, buyers have also struggled to find spot volumes of Group I base oils as it was heard that the Thai Lube 282,000 t/y base oils plant in Sriracha, Thailand, suffered some production issues, and commercial supply from a major Southeast refiner was also said to be more moderate as the producer was diverting larger quantities into its downstream operations.
Furthermore, as demand in Europe has picked up and prices have improved, there have been fewer Russian cargoes shipped to China in recent weeks.
Similarly, there have been limited movements of Group I oils of Middle East origin to China and India in recent weeks due to the start of the Ramadan period.
However, activity is expected to pick up again during the second half of July, and price ideas for cargoes arriving into China at the end of next month have moved up by $10-$20/ton over May levels, although prices are still considered to be competitive against some offers of Northeast Asian-sourced material.
A couple of cargoes were heard to have been booked from the United Arab Emirates to India, and to a lesser extent, there has been some movement of Iranian cargoes to India and China.
Offers of Iranian solvent neutral 500 were hovering at around $620/t-$650/t CFR for SN500 cargoes into China, versus regional indications at $620/t FOB Asia. There were no offers for Iranian SN150 on the table, but sources said that numbers would likely be hovering at around $10/t below those for SN500.
One positive development in relation to improved supply in China was that producer Panjin Northern Asphalt was heard to have resumed base oil production at its 400,000t/y Group II unit in Liaoning province. The producer was understood to have taken its base oil facilities offline in May for a month.
Along with improved supply levels in China due to the of output at some facilities, and the arrival of import cargoes, demand is starting to decline as the spring/summer production cycle is expected to end in July. As a result, importers and consumers are less willing to accept the higher offers presented by suppliers for available spot cargoes, even though spot material remains fairly limited.
A similar situation applies to other countries, with some prices inching up by small amounts week on week, and others remaining unchanged.
The Group III segment has seen very little pricing activity in recent weeks as suppliers have been very hesitant to move up values, given that their main concern is to protect market share under current oversupply conditions.
On an ex-tank Singapore basis, prices were largely stable, with the Group I SN150 grade assessed at $530/t-$550/t. The SN500 was holding at $640/t-$660/t, while bright stock was unchanged at $1,030/t-$1,050/t. The Group II 150 neutral cut was steady at $570/t-$600/t, and the 500N was unchanged at $750/t-$760/t.
On an FOB Asia basis, Group I SN150 was up by $10/t at $450/t-$470/t; the SN500 was also higher by $10/t $610/t-$630/t FOB. Bright stock was unchanged at $940/t-$960/t FOB.
In the Group II category, the 150N cut was holding at $540/t-$560/t FOB Asia, while the 500N/600N was assessed up by $10/t at the low end of the range at $710/t-$730/t FOB Asia.
In the Group III tier, the 4 centiStoke and 6 cSt oils were unchanged at $860/t-$890/t FOB Asia, and the 8 cSt grade at $610/t-$630/t FOB Asia.
Upstream, crude oil futures moved lower during the week, pressured by concerns over lower global demand following disappointing U.S. economic data. The upcoming United Kingdom referendum over the country’s possible exit from the European Union (dubbed “Brexit”) scheduled for next week also impacted crude prices.
ICE Brent Singapore futures closed at $50.20 per barrel in afternoon sessions on June 20, compared to $50.17 per bbl on June 13.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreases Publications shall not be liable for commercial decisions based on the contents of this report.