Conditions in the Asian base oil market appear to be slightly in disarray, with producers hoping to improve margins – which have been curtailed by steep feedstock costs – and buyers resisting price hikes on account of ample supply.
Despite recent and ongoing turnarounds in the region, availability of most grades was deemed sufficient to cover the current demand for product, with the possible exception of API Group I base stocks, as these were deemed snug.
This was particularly the case in countries such as India, which imports Group I from Iran, among other origins. It could not be ascertained whether there was a lack of Iranian offers because of sanctions that the United States has threatened to impose, high demand in Iran, or production curtailments at Iranian base oil plants.
In recent weeks, there had also been Group I cargoes coming into Asia from Europe, but this supply was expected to gradually dry up as activity in the domestic European markets has started to pick up after the summer holidays. There had also been an increase in Group I product movements detected from Russia into China.
While a good number of cargoes had been concluded from the U.S. to Asia in the past, trading on this route has dwindled because prices have fallen in Asia, and participants are not able to offset the higher transportation costs, aside from facing more risk because of the longer lead times.
The ready availability of most base oil grades has led to a softening of spot prices, with numbers slipping in markets such as India and China, where suppliers from Asia and the Middle East continue to vie for market share.
Asian producers lamented the fact that crude oil and feedstock prices were infringing upon margins and tried to keep prices from deteriorating.
Raising prices in the current market situation would be an uphill battle, sources admitted, alluding to the fact that producers may trim operating rates instead. Many refiners have the alternative of producing fuels, which provide a better return, often with lower production costs, one source commented.
However, these strategies were not expected to be implemented overnight, and it would take time for the market to regain a more balanced supply-demand ratio. Additionally, even if Asian producers adjusted running rates, there would always be product available from the Middle East, sources noted, as more capacity has come on stream since early this year.
While regional supply of Group II was expected to improve with the restart this week of Formosa Petrochemicals 600,000 metric tons per year plant in Mailiao, Taiwan – following an extended turnaround which started in early July – there were reports that the company would not be able to offer any spot cargoes in September and would in fact temporarily suspend shipments into China.
Base oil spot prices in Asia were stable to soft compared to the previous week, with some grades being assessed at lower levels because of ample supply and reduced buying interest.
Ex-tank Singapore numbers were largely unchanged, with Group I solvent neutral 150 heard at $760/t-$780/t and SN500 and SN600 cuts at $860/t-$880/t. Bright stock was hovering at $925/t-$945/t, all ex-tank Singapore.
Group II ex-tank Singapore assessments were flat, with 150 neutral holding at $805/t-$835/t and 500N at $890/t-$910/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was gauged at $700/t-$720/t, while SN500 was heard at $820/t-$840/t. Bright stock was steady at $850/t-$870/t FOB Asia.
Group II 150N was holding at $750/t-$770/t FOB Asia, while 500N and 600N were assessed down by $10/t at $810/t-$830/t FOB Asia to reflect discussions.
In the Group III segment, 4 and 6 centiStoke grades were stable at $870-$890/t and $850/t-$870/t, respectively, while 8 cSt was holding at $760/t-$780/t, FOB Asia, although plentiful availability was exerting downward pressure.
Upstream, Brent futures had been inching up toward the $80 per barrel mark over the week, but fell on Thursday after U.S. President Donald Trump criticized OPEC for pushing prices higher. Trump’s comments came just days before OPEC and its Russia-led non-OPEC partners are scheduled to meet in Algiers to review the state of the oil market.
On Thursday afternoon, Brent October futures were trading at $78.69 per barrel on the London-based ICE Futures Europe exchange, compared to $78.41/bbl on Sep. 13.
In other regional news, Chinas National Development and Reform Commission increased the retail price of fuel, effective Sep. 18, according to ChinaDaily.com. The adjustment reflected stronger crude oil values in international markets. Under the current pricing mechanism, if international crude oil prices change by more than 50 yuan per ton and remain at that level for 10 working days, the prices of refined oil products such as gasoline and diesel in China will be adjusted accordingly. The last adjustment took place on Sep. 4.
The retail price of both gasoline and diesel increased by CNY 145 per metric ton (approximately U.S. $21/t). Fluctuations in fuel prices influence driving patterns in China and can therefore have an impact on lubricant consumption.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.