Asia Base Oil Price Report
Asia Base Oil Price Report
BY GABRIELA WHEELER • MAY 24, 2016
A number of buyers are hunting for heavy-viscosity spot cargoes in Asia, which remain tight. This has allowed suppliers to raise offer prices, while higher crude oil costs are also exerting upward pressure on base oils.
Buyers reported that availability of API Group I solvent neutral 500 and Group II 500/600 neutral remains scarce, and this has resulted in an upward movement of spot indications between U.S. $10 per metric ton and $40/t, depending on the origin and cut.
However, some buyers said that even if they were willing to pay a higher price, it was not always possible to secure cargoes in the region, as several suppliers were said to be sold out of spot availability for late May or early June.
This situation has driven importers to look for options in the U.S. and Europe. It was heard that several Group II cargoes of U.S. origin had been sold into China, while Japanese Group I material was sold to China and Southeast Asia, according to sources.
Prices for the heavy-viscosity grades have been moving up steadily, especially in China, but the rapid upward movement may come to a sudden halt if demand is not sustained and importers and end-users stock enough material to cover requirements, as has happened in the past, sources said.
The tight supply/demand balance in Asia appears to have been caused by healthy demand, but also by a combination of other factors, including the upcoming turnaround in Taiwan, unexpected production issues in Thailand, and low inventories at most refineries.
Taiwanese producer Formosa Petrochemical was expected to start a two-month turnaround at its Group II plant in Mailiao in June, and has not only stopped shipping spot cargoes to China, but has also restricted the shipment of long-term parcels.
There were rumors that Thai Lube’s Group I base oils plant in Sriracha, Thailand, suffered unexpected production problems. The plant can produce 282,000 t/y of Group I base stock, according to Lubes'n'Greases’ Global Guide to Base Oil Refining, but whether the plant was down could not be verified with the producer.
Additionally, producers have been carrying low inventories and several ran plants at reduced rates since mid-2015, especially in China, due to the market downturn. This exacerbated the current supply crunch, sources said.
While prices for most base oils were moving up, interestingly enough, there was some downward pressure on Group III spot indications, a source said. This is because Group III demand has been fairly flat, while supply is outstripping demand in Asia, and a new Group III facility has just come on stream in the Middle East.
Industry sources confirmed during the ICIS Base Oils and Lubricants Conference in Singapore, held from May 17-19, that the new Abu Dhabi National Oil Company (Adnoc) plant in Ruwais, United Arab Emirates, started commercial production this month.
The plant has a nameplate capacity of 120,000 t/y of Group II base oils and 500,000 t/y of Group III cuts.
Several speakers at the conference commented that there is a current global oversupply of Group III oils, but that demand of Group III/III+ cuts will likely increase in coming years because of new requirements emerging from the automotive industry. The need to produce higher-performance lubricants for engine oils derives from the new environmental regulations being imposed by different countries that call for an improvement in fuel economy and emission reductions.
Experts explained that developments in the automotive industry will require the production of lighter engine oils with lower volatility, and that in order to manufacture these lubricants, it may be necessary to use Group III/III+ base oils.
While production of Group III oils is currently outpacing demand, these base oils are not produced in all regions, industry insiders underlined.
Amy Claxton, CEO of consulting firm My Energy, noted during a presentation at the ICIS conference that in order to produce Group III/III+ base oils, it is necessary to refine waxier crudes, which are not available in North America, for example, and are difficult to transport.
At the moment, most Group III output takes place in different parts of Asia, and there is also production in the Middle East, but there are no Group III plants in China, Kim Lu, analyst at Feedco S.A., noted during her conference presentation. China is therefore a net importer from producers such as SK, S-Oil, Shell GTL, Neste Oil, Petronas and GS Caltex.
Demand of Group III oils has grown in China because of the establishment of new lubricant plants, but it varies by region, Lu elaborated. East China is the largest consumer at 43 percent of total lube demand because it is a hub for large-scale lubricant companies and has easy access to transportation from its sea ports. Northern China comes in second with 35 percent of demand, and South China third at 22 percent.
As mentioned above, a number of base oil grades moved up this week because bids and offers were taking place at steeper levels due to the scarcity of spot volumes and firm feedstock values, but a majority of assessments remained unchanged.
The Group I SN150 cut was adjusted down slightly to bring the range in line with current price ideas, and was heard at $520/t-$540/t ex-tank Singapore. The SN500 was unchanged at $610/t-$630/t. Bright stock was steady at $1,020/t-$1,040/t ex-tank Singapore.
The Group II 150N cut was assessed higher by $40/t at $560/t-$580/t ex-tank Singapore, and the 500N was also up by $40/t at $700/t-$730/t ex-tank Singapore.
On an FOB Asia basis, Group I SN150 was heard at $430/t-$450/t; the SN500 moved up by $30/t to $570/t-$590/t FOB. Bright stock was also up at $920/t-$950/t FOB, reflecting a $20/t increase.
In the Group II category, the 150N cut was assessed up by $20/t-$30/t at $530/t-$550/t FOB Asia, while the 500N/600N edged up $30/t to $680/t-$710/t FOB Asia.
In the Group III tier, the 4 centiStoke and 6 cSt oils were assessed at $860/t-$890/t FOB Asia, and the 8 cSt grade at $610/t-$630/t FOB Asia, unchanged from the previous week due to limited activity.
Upstream, crude oil prices were fairly steady as concerns about Canadian and Nigerian supply outages offset the impact of a stronger dollar, which has rallied on strong expectations that the United States Federal Reserve will raise interest rates next month.
ICE Brent Singapore futures closed at $48.30 per barrel in afternoon sessions on May 20, compared to $48.67 per bbl on May 16.