Balanced to tight supply, steady demand and firm feedstock costs continued to characterize most Asian base oil markets, although some pockets saw slightly reduced activity during the week.
According to buyers, a few suppliers are still reporting sold-out positions on a number of grades – the heavy-viscosity cuts in particular – and this has resulted in tight regional availability of spot cargoes.
A major Northeast Asian base oil producers turnaround is in full swing, and a couple of other maintenance shutdowns are ongoing. This, coupled with fairly steadfast demand throughout the month, is expected to keep regional supply levels down.
Taiwanese producer Formosa Petrochemical started a two-month turnaround at its 600,000 metric ton per year API Group II plant in Mailiao, Taiwan, while JX Nippon in Japan was heard to be close to completing turnarounds at two of its facilities.
JX Nippons Mizushima B and Negishi Group I base oil plants were heard to have been taken offline for 30-day turnarounds in June, but there was no direct confirmation from the producer. The Mizushima B plant can produce 209,000 t/y of Group I oils, and the Negishi plant has capacity to produce 229,000 t/y of Group I, according to LubesnGreases Guide to Global Base Oil Refining.
The turnarounds have led to fewer spot cargoes being offered into China, which drove traders and importers to look for spot volumes in Southeast Asia – where supply is also deemed tight – and other regions as well.
However, Asian participants are looking ahead into the fourth quarter, when a lighter turnaround schedule is anticipated to coincide with a seasonal slowdown in demand, although major producer S-Oil was heard to have slated a turnaround at its Onsan, South Korea, plant sometime in the last quarter of the year, which could tighten supply once again. S-Oil can produce 26,000 t/y of Group I, over 1 million t/y of Group II and around 1 million t/y of Group III oils at its Onsan facilities.
Following the busy spring and summer lubricant production cycle – largely driven by the seasonal oil changes in the automotive industry – activity is expected to be less brisk in the fall, leading to a potential waning of base oil requirements.
Consumers are keeping this likely scenario in mind and are judiciously procuring material to cover immediate requirements, but prefer not to carry high inventories in case base oil prices start to weaken in coming months.
However, for the time being, there are few signs that values are abating. On the contrary, some spot indications have moved up, with buyers in urgent need of material acquiescing to the higher values and most transactions taking place near the high end of the prevailing price ranges.
Steeper base oil values are also expected in Japan in the fourth quarter, as increases that may have taken place elsewhere earlier typically lag by a few months in Japan due to the pricing mechanism utilized by base oil suppliers, which is linked to crude oil prices on a cost, insurance and freight basis.
According to sources, JX Nippons base oil prices moved down for most of 2015, with the exception of the fourth quarter of 2015, when prices were adjusted up by an average of Japanese yen 10.30 per liter. Then prices edged down again at the beginning of 2016 through the third quarter, with numbers slipping by 7.40 to 63.70/l.
Prices are expected to move up in October for fourth quarter transactions by an estimated 10/l. Producers Idemitsu Kosan and Cosmo Oil generally follow JX Nippons price movements, sources noted.
On the other hand, Japanese market participants said that finished lubricant demand has been steady and on par with last years consumption levels, with monthly pricing gradually edging up in the last few months.
Base oil spot prices in Asia underwent little change during the week, with most ranges assessed largely stable from a week ago.
On an ex-tank Singapore basis, the Group I solvent neutral 150 grade was holding at between $530 and $550 per metric ton. The SN500 was heard at $640/t-$660/t, while bright stock was stable at $1,030/t-$1,050/t.
The Group II 150 neutral was unchanged at $570/t-$600/t, and the 500N was heard at $760/t-$770/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed at $450/t-$470/t; the SN500 was steady at $620/t-$640/t FOB. Bright stock was gauged at $940/t-$960/t FOB.
In the Group II category, the 150N cut was holding at $550/t-$570/t FOB Asia, while the 500N/600N was heard at $720/t-$740/t FOB Asia.
Within the Group III tier, the 4 centiStoke and 6 cSt oils were hovering at $860/t-$890/t FOB Asia, and the 8 cSt grade at $610/t-$630/t FOB Asia.
Upstream, Brent crude oil futures remained volatile, with numbers rising as much as 2 percent on Thursday as traders covered short positions a day after crude futures plunged on U.S. data showing weak fuel demand during the traditionally busy summer driving season.
ICE Brent Singapore September futures was trading at $47.60 per barrel in afternoon sessions on July 18, compared to $46.11 per bbl on July 11.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.