Weekly Asia Base Oil Report: 08-14 July 2023

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Increased production and a decline in consumer demand resulted in a surplus of base oil supplies in Asia. This oversupply situation put downward pressure on spot prices, prompting suppliers to seek alternative markets to reduce their domestic inventories. To address the imbalanced supply and demand, producers took the initial step of lowering domestic prices and spot offers. While this strategy proved successful in securing new orders for some buyers, many still preferred the stability of term contracts to avoid fluctuations in the spot market. Surprisingly, in certain instances, spot offers became more competitive than contract prices, causing consumers to reconsider their purchase ratios and evaluate their options carefully.

A more cautious approach to buying in Asia resulted from a weaker demand in the main markets of China and India. After a relatively active spring season in China and a pre-monsoon surge in India, blenders had sufficient stocks and did not seek more volumes. Lubricant suppliers were prioritizing inventory reduction over accumulation, with some economic concerns influencing their choices.

Base Oil Trends In China

The economic activity in China has been less robust than anticipated, leading to more cautious consumer behavior and lower demand for new base oil and lubricant cargoes. Many consumers opted to deplete their existing stocks of these products instead of buying more. A new consumption tax revision on white oils also added to the uncertainty, as it made these products pricier in the domestic market. Moreover, the rapid development of electric vehicles in China was prompting traditional base oil and lubricant producers to look for new markets and opportunities. This resulted in a decline in demand for some base oil grades.

Industrial output in China has fallen short of expectations, leading to lower demand for the heavier base oils used in industrial applications. According to Trading Economics.com, China’s industrial production increased by 3.5% year-on-year in May 2023, down from a 5.6% growth in April and slightly below market estimates of 3.6%. It was the weakest expansion in industrial output in three months, mainly due to a slowdown in manufacturing activity – 4.1% vs 6.5% in April – and a drop in mining production.

A Chinese Group II plant was also said to be beginning a maintenance this month, which should last for about three weeks, while another Group II unit was expected to be restarted before the end of the month, after a two-month maintenance program, although Chinese plants’ restarts often face delays due to poor market economics.

Base Oil Trends In India

The demand for base oils in India was weak due to the monsoon season and the challenges in the logistics, transportation and construction sectors, as well as the high inventory levels that consumers had built before the rainy weather and the credit constraints that many faced. Moreover, several import shipments were expected to arrive in the coming weeks, which reduced the urgency for buyers to secure the first cargo they could find. Domestic suppliers have cut prices as local stocks increased, partly because refineries were operating at full capacity to benefit from the low-priced Russian crude oil.

A combination of lower demand for base oil in Asia and the resumption of output at some plants after maintenance shutdowns this month will increase the availability of product in the market. Moreover, some suppliers who usually do not sell base oil in the Asian merchant market have offered spot shipments, some in flexibags, to clear their stocks.

Base Oil Trends In Southeast Asia

In Southeast Asia, the political unrest in Thailand over the Prime Minister’s election may disrupt business activities in the country in the near future. Thai base oil production was stable and several API Group I shipments have been offered for spot trade, with abundant supplies putting downward pressure on prices. A big Group II facility in Singapore has reportedly come back online after a turnaround in June, which means that more cargoes have been added to the regional supply.

Base Oil Trends In Japan

A Group I refinery in Japan began a two-month maintenance in late May and was expected to resume operations this month, according to a report from a Japanese refiner in Northeast Asia. Another Japanese supplier also underwent a maintenance that started in April and likely ended in late June, but more details were not available. A smaller Japanese unit was planned to be partially shut down in late August. A Group I facility in Japan was also set to be permanently closed around September of this year.

Base Oil Trends In Taiwan

The only Taiwanese Group II producer was said to be stockpiling products to meet term obligations during a planned maintenance in the fourth quarter. The supplier usually exports large volumes to China but has instead rerouted some of its shipments to other markets due to weak Chinese demand.

Base Oil Trends In South Korea

One Group II and III facility in South Korea was set to restart production this month, and more product from the plant was likely to become available in the next few weeks. A major Group III manufacturer in South Korea had reportedly delayed its maintenance until the first or second quarter of 2024.

South Korean sellers were negotiating for late July/August deliveries, with several small shipments being offered, such as a 1,000-metric ton cargo for loading in Onsan and discharge in Singapore at the end of July.

In addition, a 1,300-ton parcel was scheduled to be transported from Onsan to Bangkok, Thailand, in mid-August. Around 3,000 tons were expected to ship from Onsan to Wakayama, Japan, next week as well.

Base Oil price In Asia

Spot base oil price assessments in Asia were stable-to-lower this week, with prices for some grades declining due to weaker fundamentals. The price ranges shown below reflect discussions, bids and offers, as well as transactions and published prices widely regarded as benchmarks for the region.

The Group I sn 150 grade remained stable at $870/t-$900/t ex-tank Singapore, while the SN500 dropped by $20/t to $940/t-$980/t. Bright stock plunged by $30/t to $1,160/t-$1,200/t, all ex-tank Singapore.

The Group II 150 neutral saw a decrease of $20/t to $920/t-$960/t ex-tank Singapore, and the 500N also fell by the same amount to $960/t-$1,000/t.

On an FOB Asia basis, Group I SN150 stayed at $700/t-$740/t, but the SN500 lost $10/t to $800/t-$840/t. Bright stock prices declined by $30/t to $890/t-930/t, FOB Asia.

The Group II 150N was lower by $10/t at $790/t-$830/t FOB Asia, and the 500N and 600N cuts also reduced by $10/t to $840/t-$880/t, FOB Asia.

In the Group III segment, some ranges moved down due to rising competition. The 4 cSt was steady at $1,490-$1,520/t, but the 6 cSt was down by $10/t at $1,450/t-$1,490/t. The 8 cSt grade also decreased by $10/t to $1,070-1,110/t, FOB Asia, for fully approved product.

SN 150 SN 500 Base Stocks N 150 N 500
Singapore $870/t-$900/t $940/t-$980/t $1,160/t-$1,200/t $920/t-$960/t $960/t-$1,000/t
FOB Asia $700/t-$740/t $800–840/t $890/t-930/t $790/t-$830/t $840/t-$880/t
Price Per Ton Base Oil In Asia 08-14 July 2023
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