Weekly Asia Base Oil Report: 23 – 29  September 2023

The base oil market in Asia faced growing pressure due to tightening supply and demand dynamics, exacerbated by surging prices of crude oil, fuels, and feedstocks. In response to high demand for specific grades, suppliers had raised their offering prices, but the availability of these grades dwindled. This scarcity resulted from reduced base oil production at certain refineries, where operators had shifted a significant portion of feedstocks toward fuel production.

Furthermore, ongoing and upcoming plant turnarounds had a notable impact on supply levels across the industry. Interestingly, the API Group III segment appeared to be an exception, with ample supplies despite lackluster consumption both regionally and in export markets, including Europe.

In recent weeks, several countries had witnessed a surge in demand for base oil, partly driven by concerns of impending price hikes. Buyers rushed to secure cargoes before anticipated price increases were implemented. Additionally, many consumers had been relying on their existing inventories and found the need to replenish their stocks, further contributing to the demand upswing.

Base Oil Trends In Southeast Asia

In the vital Group I supply hub of Southeast Asia, numerous producers found themselves facing sold-out positions for spot cargoes or could only offer limited quantities of Group I grades. This situation arose due to a combination of recent unplanned outages and ongoing turnarounds, alongside steady-to-firm demand for these base oil products.

Anticipation was high for an increase in buying activity in Thailand, coinciding with the onset of the dry season. Reports also indicated that demand in Indonesia and Malaysia remained robust.

Recognizing the limitations of local production to meet consumer needs, several import shipments had been finalized, targeting destinations within Southeast Asia. Discussions centered around shipping between 7,000 and 9,500 metric tons of base oils from Daesan and Ulsan, South Korea, to locations such as Ho Chi Minh, Vietnam, Singapore, and Port Klang, Malaysia. Additionally, there were plans for a prompt 1,000-ton cargo to be transported from Onsan, South Korea, to Merak, Indonesia, while another 1,000 tons were likely to head from Onsan to Bangkok, Thailand, in early October. Furthermore, a 500-ton parcel was expected to make its way from Onsan to Ciwandan, Indonesia, in the same timeframe.

Base Oil Trends In Japan

Eneos, a prominent Japanese producer specializing in Group I base oils, had initiated an extensive three-month maintenance program at its Mizushima-A Group I plant. Additionally, they had plans to permanently idle their Group I Wakayama refinery, which housed a Group I plant, starting in October.

Meanwhile, within the Group II segment, Formosa Petrochemical, the sole producer of Group II base oils in Taiwan, was gearing up for a comprehensive two-month turnaround scheduled to commence in mid-October. To ensure they met their domestic term obligations during this period, Formosa Petrochemical was diligently building inventories. Consequently, it was widely expected that the producer would temporarily suspend most of its spot exports while the plant remained out of commission.

In the broader context of the base oil market in Asia, discussions were ongoing concerning both Group I and Group II products. However, the limited availability of spot offerings and buyer reluctance to accept higher price offers were hindering the successful conclusion of several proposed transactions. Some consumers were actively exploring alternatives to Group I, with potential consideration of Group II grades whenever formulation flexibility allowed. However, it was worth noting that Group II supplies were also experiencing constraints, leading to an uptick in offers. Notably, certain South Korean cargoes were being offered at significantly elevated prices compared to just a month prior.

Base Oil Trends In India

India’s base oil market witnessed a surge in buying interest as the monsoon season neared its end in late September. This uptick in demand was driven by expectations of improved lubricant consumption. Concurrently, a resurgence in base oil activity combined with reduced production at certain facilities prioritizing gasoil production created a tighter supply and demand scenario, resulting in rising prices.

The demand for light-viscosity grades intensified, primarily due to their usage in fuel blending. The increased value of gasoil further encouraged consumers to secure additional supplies of light base oils. As spot prices continued to climb, buyers began to exercise their maximum entitlements under term contracts, further exacerbating the tight market conditions.

Spot CFR prices for both Group I and Group II base oils entering the Indian market experienced incremental increases, ranging from $10/ton to $40/ton on a week-to-week basis, depending on the specific grade. Notably, light viscosities saw the most significant price jumps.

In parallel developments, Bharat Petroleum was reported to have scheduled a refinery turnaround in Mumbai for the current month. This turnaround would result in a partial shutdown of the base oils plant, impacting Group II production. However, confirmation of this schedule from the producer was not available.

Regional suppliers were actively engaged in shipping arrangements to meet India’s burgeoning demand. These plans included a mention of a 5,800-ton cargo potentially being transported from Mailiao, Taiwan, to Mumbai in late September. Additionally, around 10,000 tons were quoted for shipment from Daesan to Hazira and/or Mumbai and Hamriyah, also in late September. Furthermore, discussions included the possibility of a 1,350-ton lot being shipped from Ulsan to Mumbai in late October, reflecting the dynamic and evolving nature of the base oil market in the region.

Base Oil Trends In China

Within China, the appetite for importing base oils remained subdued, primarily due to the growing capacity of the domestic supply chain, which effectively catered to most of the existing demands. This subdued interest was further compounded by economic indicators that did not exhibit the anticipated robustness, consequently dampening overall market activity.

However, there was a notable exception in the form of an increased interest in bright stock. China traditionally grappled with a shortage of this particular base oil grade. Fortunately, this situation was poised to improve as recently completed shipments from Thailand were expected to help bridge the gap in supply.

The spotlight within China’s base oil industry was directed towards supplies of Group III base oil. This heightened attention was sparked by the commencement of operations at a new production facility, indicating a significant expansion in the country’s production capacity for high-performance base oils. This development hinted at the likelihood of a greater availability of Group III base oil products in the Asian market in the coming months, potentially influencing pricing and supply dynamics in the region.

The recent establishment of the Hongrun Petrochemical base oil plant in Weifang, Shandong, underscored China’s continued expansion in the production of high-performance base oils. This development signaled a potential increase in the availability of Group III base oil cargoes in Asia in the upcoming months. Another Group III plant was also on the horizon in India, further exerting downward pressure on Group III prices in the region.

Concurrently, industry participants were engaged in discussions regarding potential shipments to China slated for October. Approximately 10,000 metric tons were quoted for transportation from Onsan and Daesan to destinations like Tianjin and Zhapu in mid-October. Additionally, a 1,100-ton shipment was expected to be dispatched from Onsan to Huizhou in early October.

Base Oil price In Asia

In the dynamic Asian base oil market, spot price assessments presented a mixed picture during the week. Prices for various grades exhibited diverse trends, with some experiencing upward movements, some remaining stable, and others declining. The price ranges provided below encapsulate the outcomes of discussions, bids, offers, deals, and published prices that are widely recognized as benchmarks for the region.

Within the ex-tank Singapore pricing environment, stability to firmness was observed. The Group I solvent neutral 150 grade held steady within the range of $800/t to $840/t, while the SN500 grade remained unchanged from the prior week, maintaining a price range of $930/t to $970/t. Bright stock prices hovered between $1,070/t and $1,110/t, all within the ex-tank Singapore context.

Prices for the Group II 150 neutral grade saw an increase of $30/t, now ranging from $970/t to $1,010/t. Similarly, the 500N grade exhibited a $20/t uptick, with prices ranging from $1,030/t to $1,070/t within the ex-tank Singapore setting.

Shifting to the FOB Asia basis, Group I SN150 prices increased by $10/t, reaching a range of $720/t to $760/t. The SN500 grade also saw a $10/t hike, now priced between $850/t and $890/t. Bright stock prices experienced a more substantial increase of $20/t, ranging from $910/t to $950/t, all within the FOB Asia framework, although there were relatively few offers reported.

The Group II 150N grade recorded a notable jump of $40/t, now priced between $870/t and $910/t on an FOB Asia basis. Similarly, the 500N grade advanced by $30/t, with prices ranging from $900/t to $940/t within the FOB Asia context.

In the Group III segment, prices for both the 4 centiStoke and 6 cSt grades witnessed declines during the week. Plentiful supplies and competitive dynamics among suppliers contributed to this trend. The 4 cSt grade saw a reduction of $20/t, now assessed within the range of $1,340/t to $1,370/t. The 6 cSt grade followed suit with a $20/t decrease, with prices spanning from $1,300/t to $1,340/t. The 8 cSt grade, facing thin discussions and increasing supply, slipped by $10/t to a range of $1,060/t to $1,100/t. These price indications are reflective of fully approved products within the FOB Asia framework.