The heightened supply concerns seen over the last few weeks eased slightly this week as news circulated that a Taiwanese producer had resumed production.
Taiwanese producer Formosa Petrochemical Corp. confirmed that it had restarted its API Group II base oil plant at Mailiao on June 17, following a brief shutdown which started on June 8. The 600,000 metric tons per year Group II unit was unexpectedly taken off-line due to mechanical issues, a source said, but the facility was heard to be running again, and no impact was expected on contractual obligations, with domestic requirements anticipated to be covered.
However, there was still some concern that the producer would not be able to ship as many spot volumes as it typically does, according to sources. Buyers in China in particular were keeping an eye on the situation, given that Formosa can regularly export approximately 40,000 tons of base oils to China each month – although this quantity may vary, depending on domestic demand and running rates at the plant.
The reduced spot availability was especially worrisome because of recent turnarounds in the region – which have resulted in very tight conditions – and an ongoing shutdown in South Korea. SK Lubricants was heard to have started a turnaround at its base oil unit in Ulsan, South Korea, in early June. SKs 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. However, no confirmation about the turnaround was available from the producer.
Another segment of the market which may continue to see snug availability was the Group III tier. Group III supply has tightened since last November on account of an unplanned outage at the Pearl gas-to-liquids plant owned by Shell and Qatar Petroleum in Ras Laffan, Qatar. Although its operators are reportedly restarting production and expected to resume exports in July, there were concerns that the current dispute between several Middle East countries and Qatar could impact plant operations.
The Pearl plant has capacity to make 1 million t/y of Group III base stocks, which are mainly used for Shells own downstream operations.
However, a source familiar with the plant operations noted that so far, there had not been any operational disruptions as a result of the current situation in the Middle East. Saudi Arabia, the United Arab Emirates, Egypt and Bahrain severed diplomatic relations with Qatar on June 5, accusing Qatar of funding terrorism and supporting extremist Islamist groups.
Meanwhile, in Asia, another base oil unit was expected to resume production in the next few days. Idemitsu Kosans refinery in Chiba, Japan, was understood to have initiated the restart process on June 16, following a turnaround that started in mid-June. Base oil production was anticipated to resume within a weeks time, with the maintenance program having proceeded as planned. Regular contract supply from the producer was not expected to have been affected by the shutdown.
Idemitsus base oil plant can produce 123,000 t/y of Group I, 138,000 t/y of Group II and 44,000 t/y of Group III oils, according to LubesnGreasesGlobal Guide to Base Oil Refining.
Also in Japan, JX Nippon Oil was heard to have shut down its 209,000 t/y Group I plant in Mizushima for two and a half months in early May. The companys second base oil unit in Mizushima will not be affected, according to sources. Producer confirmation about the shutdown schedule was not forthcoming.
Base oil consumers in Japan concurred that they had not noticed any supply problems arising from recent turnarounds at Japanese facilities.
Sources also noted that Japanese producers have communicated base oil price increases for the domestic market as of July 1. JX Nippon will increase its 150 neutral price by Japanese Yen 3.6 per liter to Yen 79.56/l, reflecting fluctuations in CIF crude oil import prices into Japan. The producer had previously lifted its 150N price by Yen 10.9/l to Yen 75.96/l on April 1.
Aside from local price fluctuations, spot base oil prices were generally stable in Asia this week, with business said to be somewhat hampered by strained supply. Slightly lower numbers were being bandied about in the Singapore ex-tank market due to weaker buying interest.
Trading was expected to be muffled in some countries this week ahead of the start of the Eid ul-Fitr holiday on June 25, which marks the end of Ramadan. The limited number of offers for Middle-East origin product could restrict supply options into India over the next couple of weeks, sources noted.
On an ex-tank Singapore basis, Group I solvent neutral 150 was steady at $700/t-$720/t, SN500 at $860/t-$880/t, and bright stock at $960/t-$980/t. Group II 150 neutral was assessed down by $10/t at $700/t-$720/t, and 500N was also lower by $10/t at $910/t-$930/t, again ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was unchanged at $570/t-$600/t, and SN500 was stable at $770/t-$790/t FOB. Bright stock was heard at $800/t-$820/t. Group II base oils were heard 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 holding at $770/t-$790/t, while 8 cSt was heard at $750/t-$770/t, all FOB Asia.
Upstream, crude oil futures inched up on Monday, after slipping in previous trading sessions, but the upside was capped by expectations that U.S. oil production would continue to climb. Nevertheless, Saudi Oil Minister Khalid al-Falih appeared optimistic that the crude oil market was likely to rebalance in the fourth quarter – even with an increase in shale oil production in the U.S. – thanks to the OPEC agreement to cut output, according to an interview published by London-based Arab daily Asharq al-Awsat on Monday.
ICE Brent Singapore August futures settled at $47.17 per barrel on June 19, down from $48.31/bbl on June 12.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.