Producers have been facing stiff buyer resistance to increases because of the current supply glut that has been affecting Asian trade, and because of competitive prices in other regions, but the recent climb in raw material values has been squeezing margins to a point where it is unsustainable, a source said.

Sources also acknowledged that larger producers may have a better chance at pushing through increases than smaller suppliers. Also, those producers whose production costs are lower – with plants located in the Middle East and the United States, for example – are able to absorb some of the cost increases to a certain extent, whereas high-cost producers are in a much more precarious position.

A few producers may opt for trimming base oil production rates and stream feedstocks towards the production of transportation fuels. This could lead to a more balanced supply/demand scenario. When the margins get too thin, refiners will cut back runs or take an unplanned shutdown, and eventually markets get back to making sense, a market source noted.

A number of turnarounds in Asia have helped curb oversupply in certain segments of the market, but they have not been sufficient to cause a significant dent in availability.

At the same time, the inception of new capacity into the Asian supply system has also contributed to the supply glut. Several plants have recently started production, or are on the verge of coming on stream.

There were reports that ExxonMobil was getting ready to complete its Group II expansion at the Singapore refinery. This project was started in 2017, and is expected to add a substantial amount of Group II production. Additionally, the company announced during the ICIS Base Oils conference in Singapore last June that it was moving forward with a second multi-billion dollar expansion at the same location, which will increase the companys global supply of Group II base stocks and clean fuels. This expansion will increase the companys capacity to make Group II base oils in Singapore by 1 million t/y by 2023.

It was also heard that ExxonMobil would be taking its Pulau Ayer Chawan Group I plant off-line for a routine turnaround in June, although this could not be confirmed with the producer directly. The plant can produce 678,000 t/y of Group I base oils, according to LubesnGreases Guide to Global Base Oil Refining.

In China, Hengli Petrochemical was anticipated to start up a new Group II and III plant in Dalian next month. The plants nameplate capacity was understood to be 683,000 t/y of Group II/III base oils.

The increase in domestic base stock production in China, in particular of Group II molecules, has resulted in a reduced need to import material, although there are still large volumes arriving from South Korea, Taiwan, and the Middle East, among other supply points. While Chinese demand has improved with the arrival of spring, it was said to be less robust than in previous years, which was weighing on domestic pricing.

Meanwhile, spot prices in Asia continued to be pressured up by rising crude oil and raw material costs, and some price ranges edged up on producers increase initiatives.

Ex-tank Singapore Group I prices for the solvent neutral 150 grade were revised down by $20/t to $740-$760/t per metric ton on a major refiners price adjustments, while the SN500 was assessed up by $10-20/ton to $790/t-$810/t to reflect the producers increases. Bright stock was also up by $20/t at $900/t-$920/t, all ex-tank Singapore.

Group II 150 neutral was adjusted up by $10/t, following a $10/t price revision the previous week, to $780/t-$800/t, while the 500N was also up by $10/t to $790/t-$820/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was holding at $650/t-$680/t, and the SN500 grade edged up by $10/t to $640/t-$660/t. Bright stock was revised up by $10/t as well to $790/t-$810/t, FOB Asia.

Group II 150N was up by $10/t at $630/t-$650/t FOB Asia, while the 500N and 600N cuts were also raised by $10/t to $640/t-$660/t, FOB Asia.

In the Group III segment, the 4 centiStoke grade was heard at $830-$870/t and the 6 cSt was hovering at $840/t-$885/t. The 8 cSt grade was steady at $730/t-$760/t, FOB Asia for fully-approved product.

Upstream, crude oil futures moved higher during the week as the United States announced on Monday that it would not extend the sanction waivers for eight countries importing crude oil from Iran, which would effectively remove approximately 1.1 million barrels per day from the market and push prices up.

However, Saudi Arabia and several of its allies appeared ready to produce enough oil to replace the barrels that would be lost from Iranian exports, limiting the impact on prices.

Brent June futures were trading at $74.91 per barrel on the London-based ICE Futures Europe exchange on April 25, up from $71.43 on April 18.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.