The Lunar New Year festivities resulted in reduced trading in large parts of Asia this week, while preparations for the spring production cycle appear to have started in others.
Buying and selling has come to a virtual halt in countries such as China, Taiwan and Vietnam as a large number of participants were away from their workplaces, with many manufacturing facilities closing their doors for one to two weeks as employees travel to spend the holidays with family. Activity has also slowed down in Southeast Asian countries with large Chinese populations, such as Singapore and Malaysia.
In China, chaotic conditions on highways, train stations and other transportation centers ensued from the millions of travelers that are on the road during the Spring Festival, but the impacts on transportation were also likely to lead to an increase in fuel and automotive lubricant consumption.
In other markets, business remained somewhat subdued due to the lack of clear price direction and lackluster buying appetite, but suppliers noted that the first few signs of a pick-up in demand in anticipation of the more active spring season had emerged.
While this appeared to be welcome news to concerned producers, who have been dealing with bulging inventories and sluggish demand for several months, it was still unclear how the market would be able to regain a more balanced supply and demand situation.
Reports circulated that some producers would be trimming operating rates and redirecting feedstocks into more lucrative products, thereby reducing the amount of base oils being stored in their tanks.
A couple of plants were also expected to undergo turnarounds in the first quarter, with one producer in South Korea expected to shut down in February, although further details were not forthcoming.
It was heard that the plant in Yanbu ‘al Bahr in Saudi Arabia had unexpectedly been taken off-line for two months, but producer confirmation could not be obtained by press time. It was not clear how this shutdown would affect supply levels to Asia, and more specifically, India, as this country typically imports substantial amounts from the Saudi producer.
However, it was also heard that large amounts of API Group II base oils from the United States were expected to arrive in India over the coming weeks, in addition to the regular volumes imported from South Korea, possibly to partly make up for the production shortfall in Saudi Arabia.
With spot prices having weakened in the U.S. and Gulf Coast producers enjoying a significant cost advantage over South Korean suppliers, there was speculation that competition between the two supplying regions would intensify. The Saudi Arabian producer has also become an important player within this scenario in recent months.
Meanwhile, there was also talk about U.S. cargoes competing with offers from European suppliers of Group I for Asian and Middle East consumers, and while Europe possesses the advantage of closer proximity to the region, sources indicated that U.S. prices appeared more attractive.
In terms of Group III cargoes, there were several parcels expected to make their way from Al Ruwais, United Arab Emirates, into India and China in the next few months, again competing with regional cargoes.
While regional spot indications underwent little variation during the week due to the reduction in trading volumes, it was reported that in Taiwan, the local producer of Group II base oils, Formosa Petrochemical Corp., had lowered its domestic list prices for February shipment.
Formosa was heard to have reduced the price of its Group II 70 neutral grade by New Taiwan Dollars (NT$) 0.61 per liter. The producer’s 150N cut was marked down by NT$0.21/liter, while its 500N was decreased by NT$0.20/liter from January levels.
Spot prices in Asia were assessed as largely stable from the previous week on thin trading.
Ex-tank Singapore prices for Group I solvent neutral 150 were steady at $740-$760/t per metric ton, while SN500 was heard at $750/t-$790/t. Bright stock was unchanged at $870/t-$890/t, all ex-tank Singapore.
Group II 150 neutral was holding at $750/t-$800/t and 500N was also stable at $760/t-$810/t, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed at $650/t-$690/t, while SN500 was near $620/t-$640/t. Bright stock was gauged at $780/t-$800/t, FOB Asia.
Group II 150N was steady at $590/t-$610/t FOB Asia, while the 500N and 600N cuts were heard at $620/t-$640/t, FOB Asia.
In the Group III segment, the 4 centiStoke grade was hovering at $820-$860/t and the 6 cSt at $830/t-$880/t. The 8 cSt grade was steady at $710/t-$740/t, FOB Asia for fully-approved product.
Base oil producers had hoped that the recent climb in crude oil values would provide a bottom to base oil indications, which have been on a downward spiral for several months.
However, on Thursday, oil futures fell on concerns that a trade war between the U.S. and China would continue, as a meeting between President Donald Trump and President Xi Jinping appeared unlikely to take place before a critical March deadline. An extension of the trade dispute could result in a reduction of global crude oil demand, analysts speculated.
On Feb. 7, Brent March futures were trading at $60.98 per barrel on the London-based ICE Futures Europe exchange, down from $62.07/bbl on Jan. 31.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.