June 13, 2017
Volume 7 Issue 4
Asia Base Oil Price Report
Tight market conditions in Asia continue to dominate discussions, with spot prices reported as stable on account of a lack of readily available cargoes.
Spot prices in Asia’s key market, China, had been exposed to downward pressure over the last couple of weeks due to adequate supplies and ample stocks in the hands of importers, but news that a regional producer had shut down its base oil plant unexpectedly during the week stalled the downtrend.
It was heard that Taiwanese producer Formosa Petrochemical Corp. had unexpectedly taken its API Group II plant in Mailiao off-line because of technical issues. The plant was anticipated to be restarted in approximately one week, but participants were concerned that the unit would stay off-line longer, reducing supply of Group II base oils in the region.
The unit can produce 600,000 metric tons per year of Group II oils according to Lubes’n’Greases’ Global Guide to Base Oil Refining, and the producer had already planned on trimming its operating rates in July due to routine maintenance of an upstream unit. The base oil plant had also been briefly taken off-line in April due to a glitch at the same crude distillation unit.
A large portion of Formosa’s base stock production – often around 40,000 tons – is exported to China every month. Some of the material is shipped under contract, and when available, Formosa also exports spot cargoes.
Spot shipments from Formosa had been suspended for about three months last year following a turnaround at the plant, and had also been reduced a couple of times this year because the producer had prioritized contractual obligations.
Formosa was also heard to have lowered its domestic list prices for June transactions last week. Meeting domestic requirements is Formosa’s main priority, according to sources.
Aside from reduced supply from Formosa, Chinese buyers may see smaller quantities of material coming from South Korea.
It was heard that spot shipments to China from South Korean producer GS Caltex had been temporarily suspended following a turnaround at the company’s Yeosu plant in April. The plant had not attained full production since the outage, but was understood to be gradually ramping up rates, although this could not be confirmed. The plant’s capacity is 1,151,000 metric tons per year of API Group II and 146,000 t/y of Group III base oils.
Additionally, SK Lubricants scheduled a turnaround at its base oil unit in Ulsan, South Korea, for the month of June. SK’s unit has capacity to produce 700,000 t/y of Group II and 1.3 million t/y of Group III base oils and also exports to China on a regular basis.
Another outage will be taking place in China, with the Sinopec Nanjing unit heard to be scheduled for a three-week shutdown in July. The plant can produce 200,000 t/y of Group II base oils.
While many players had expected the supply tightness observed throughout the first half of the year to start easing in July – a time when demand typically starts to slow down – conditions may not change until later.
Predictions now point at August or September as a possible timeframe for improved availability in the region.
While most of the planned shutdowns so far have taken place at Asian Group I, II and III units, the unplanned outage at the “Pearl GTL” Shell/Qatar Petroleum plant in Ras Laffan, Qatar, has also had an impact on availability in the region.
The Pearl gas-to-liquids plant, which was unexpectedly shut down last November, is reportedly in the restart process, with operating rates anticipated to increase by July. However, some participants said that product flow from the plant may not be back to a regular schedule until later in the year. The GTL plant has capacity to make 1 million t/y of Group III. Producer confirmation about its output status was not forthcoming.
Aside from production issues, fluctuating crude oil prices could have a strong influence on base oil pricing moving forward.
Crude oil futures bounced back on Monday, following last week’s significant drop of nearly 4 percent as traders looked ahead to the weekly update on U.S. oil supplies, and to monthly reports on U.S. shale crude production.
Analysts said the early week price recovery looked technical in nature, after West Texas Intermediate rallied and encouraged a similar move in the Brent market.
Futures had dropped the previous week on an increase in U.S. oil output, with additional oil rigs being brought on line every month. Eight additional oil rigs were in operation in the U.S. last week, putting the figure at 741, the most since April 2015, according to Baker Hughes.
ICE Brent Singapore August futures settled at $48.31 per barrel on June 12, down from $50.12/bbl on June 5.
Base oil prices were assessed stable week-on-week, although some grades remained exposed to upward pressure due to the continuous snug market fundamentals.
On an ex-tank Singapore basis, Group I SN150 was heard at $700/t-$720/t, SN500 at $860/t-$880/t, and bright stock at $960/t-$980/t.
Group II 150 neutral was steady at $710/t-$730/t, and 500N at $920/t-$940/t, again ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was largely unchanged at $570/t-$600/t, and SN500 was holding at $770/t-$790/t FOB. Bright stock was heard at $800/t-$820/t.
Group II base oils were mentioned at $630/t-$650/t for 150N and at $840/t-$860/t for the 500N/600N grades.
In the Group III segment, 4 centiStoke and 6 cSt oils were unchanged at $770/t-$790/t, while 8 cSt was heard at $750/t-$770/t, all FOB Asia.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.