While not all countries in Asia have been affected by the coronavirus outbreak to the same degree as China, there was still concern about the situation as most economies in the region are closely tied to Chinese growth rates, and the base oils market was no exception.
One of the reasons the base oil and lubricant segments have been affected was because of disruptions to the supply chain in China, where the outbreak began.
Business and manufacturing activities have been impacted by factory closures and transportation disruptions in numerous areas of China. As a result, industrial and automotive manufacturing facilities have been forced to temporarily idle production lines due to the lack of parts and materials coming from China. This, in turn, has led to a slowdown in industrial and automotive lubricant requirements.
The countries that appeared most sensitive from a supply chain perspective were those in southeast Asia, together with Japan, South Korea and the United States, although the impact in the latter was characterized as minimal so far.
Analysts said that Japan has been hit hard by the coronavirus crisis as it exacerbated the slowdown which was affecting the country’s already weakened economy. CNN.com reported that the world’s third-largest economy shrank 1.6 percent in the fourth quarter of 2019, according to a government estimate released Monday. The decline from the third quarter is the biggest contraction since 2014.
Japanese base oil sources acknowledged that demand for lubricants had been negatively affected by the higher sales tax imposed since Q4 2019, and conditions in Q1 2020 have worsened on account of the coronavirus.
Also in Japan, producer JXTG Nippon was heard to have shut down one of its API Group I plants in Mizushima due to an unexpected mechanical issue, but the unit was anticipated to be brought back up the first week of March.
In China, base oil operations have been severely crippled by the coronavirus crisis and production seems to be crumbling under the pressure of adverse market conditions.
Several factors were working against keeping operations running at normal rates: an absence of employees, as the government has limited the movement of people within China and has recommended self-quarantines; the decrease in base oil demand due to the reduced industrial and automotive activity; and the mounting inventories at base oil facilities.
Those plant operators who have sufficient storage continued to run at normal rates because they were taking advantage of lower feedstock prices. These producers were building stocks with the more economically produced barrels, and were able to afford selling product at reduced prices to entice buyers, with domestic pricing heard to have slumped.
A good number of Chinese plants were heard to have either substantially cut back run rates, or temporarily halted operations.
There were reports that among those that have shut down are Hainan Handi‘s Group II plant in Hainan, Panjin Northern Asphalt’s Group II and naphthenics unit in Panjin, and Sinopec‘s Group I and II plant in Gaoqiao, Shanghai.
Sinopec’s Group I/II and III plant in Maoming, Kaitai Petrochemical‘s Group II plant in Zibo, and Shandong Hengrunde’s Group II unit in Shandong were heard to have trimmed operating rates.
China’s base oil imports from South Korea and Taiwan have also been reduced, although there were reports that shipments from the Middle East continued as scheduled.
One of the Middle East suppliers to China, Abu Dhabi National Oil Co., which regularly ships Group II/III base stocks, has shut down its plant in Ruwais, United Arab Emirates, for a turnaround this month, which might result in reduced export volumes.
In more positive news, automakers in China were heard to be gradually reopening factories as local officials received orders from the ruling Communist Party to get businesses functioning again, media outlets reported.
Another factor that market participants were paying close attention to was the price of crude oil, as numbers remained volatile.
Crude oil futures climbed on Thursday, extending gains from the previous session, as demand concerns eased because the number of new coronavirus cases in China appeared to be decreasing. Additionally, the conflict in Libya was expected to result in further oil output cuts, while U.S. sanctions on a subsidiary of Russian state oil major Rosneft could take more Venezuelan crude away from the market.
On Thursday, Feb. 20, Brent April futures were trading at $58.97 per barrel on the London-based ICE Futures Europe exchange, compared to $55.17/bbl on Feb. 13.
Base oil spot prices underwent no adjustments this week, despite downward pressure, on thin discussions and uncertain prospects for future demand. Prices for some grades were revised down by $10-20 per metric ton earlier this month to reflect lower bids and offers.
Ex-tank Singapore Group I prices for the solvent neutral 150 grade was assessed at $660/t-$680/t, and the SN500 was at $710/t-$730/t. Bright stock was steady at $820/t-$840/t, all ex-tank Singapore.
The Group II 150 neutral and 500N were stable at $720/t-$740/t and $730/t-$750/t, respectively, ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was assessed at $530/t-$560/t, and the SN500 grade was heard at $540/t-$550/t. Bright stock was hovering at $690/t-$710/t, FOB Asia.
Group II 150N was heard at $560/t-$580/t FOB Asia, while the 500N and 600N cuts were gauged at $580/t-$600/t, FOB Asia.
In the Group III segment, the 4 centiStoke and 6 cSt were assessed at $760-$790/t and $770/t-$805/t, respectively. The 8 cSt grade was unchanged at $710-730/t, FOB Asia for fully approved product.
Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.
LubesnGreasesshall not be liable for commercial decisions based on the contents of this report.
Historic and current base oil pricing data are available for purchase inExcel format.