Weekly Asia Base Oil Report: 09 – 16  September 2023

Steadfast fluctuations in crude oil and raw material prices, along with tightening supplies, either lent their support to prevailing price notions or propelled prices upwards for the majority of API Group I and Group II base oil grades in the Asian market. In contrast, Group III variants faced downward pressure due to their widespread availability. Nonetheless, producers appeared poised to recalibrate plant production rates in the upcoming weeks to alleviate the excess product inventory. Meanwhile, observers in Japan remained vigilant about Typhoon Yun-yeung, which was anticipated to make landfall in the southern region of the country on Friday, bringing with it heavy rainfall, potent winds, and the potential for flooding.

The Asian market has witnessed a surge in demand for Group I and Group II base oils, resulting in a decline in producer inventories. This situation was exacerbated by a select number of refiners opting to divert more feedstocks into fuel production, consequently reducing their base oil output. Ongoing and impending maintenance turnarounds, coupled with unforeseen plant shutdowns in the region, have also had a notable impact on supply levels.

Base Oil Trends In South Korea

The Hyundai Oilbank refinery located in Daesan, South Korea, reportedly faced a fire incident on August 25, leading to a temporary disruption in the supply of feedstocks to its affiliated Hyundai and Shell Base Oil Co. Group II base oil plant. Consequently, the base oils unit remained inactive for approximately one week, with plans for production to recommence on September 1, as per insider information. While spot shipments experienced limitations due to the outage, it was expected that contractual commitments would still be fulfilled.

This disruption in South Korea exacerbated the existing challenges in the Group II supply landscape, as several other producers had previously scheduled turnarounds in the coming weeks.

Base Oil Trends In Taiwan

In Taiwan, the only Group II producer, Formosa Petrochemical, was reportedly preparing for a two-month plant turnaround in Mailiao scheduled for October. To mitigate the impact on term requirements during the shutdown, the producer had been building up inventories. However, this led to a reduction in spot sales within the region and shipments to China. Taiwan often exports Group II base oils to India as well.

Base Oil Trends In India

In India, Bharat Petroleum was believed to have planned a refinery turnaround in Mumbai for this month, which would entail a partial shutdown of the base oils plant, affecting Group II production.

The availability of Group I base oils had also tightened due to heightened purchasing interest in Southeast Asian products, particularly Thai base oils, alongside plant shutdowns in Japan. Thai Group I supplies were under strain due to strong domestic demand, buoyed by positive economic prospects in the country, and robust interest from regional blenders. Indonesia, while offering a few small Group I spot cargoes, had reduced output, redirecting more feedstocks to fuel production and reducing base oil operating rates at the local refinery.

In India, there seemed to be a resurgence in the demand for imports, marking a positive shift after a period of stagnation due to the monsoon season and its associated slowdown in transportation and industrial activities. As the rainy season neared its conclusion, buyers actively sought fresh cargoes, and offers began to rise, reflecting a tightening supply situation in the Asian market.

South Korean suppliers were engaged in discussions to finalize shipments to India. It was expected that shipments ranging from 7,000 tons to 12,000 tons would be dispatched from Onsan to Mumbai in the first half of September. Furthermore, a 3,500-ton shipment from Ulsan, South Korea, to Mumbai was anticipated in mid-October.

Several other cargo deals were also under negotiation. While domestic supplies were abundant, they were not expected to meet the resurging demand. Moreover, the absence of U.S. and Taiwanese spot shipments, which typically formed a significant portion of Indian imports, had become apparent. This was due to tightening supply in the U.S. and the Taiwanese producer preparing for a turnaround. With fewer alternatives available, buyers reluctantly accepted higher offers for Group I and Group II cargoes, resulting in CFR India indications rising by $10 per metric ton to $30 per metric ton. Group III prices faced pressure due to ample supplies from Asia and the Middle East, coupled with limited buying interest.

Base Oil Trends In japan

In Japan, a minor fire incident occurred at the Eneos Mizushima-B refinery in Kurashiki on August 23. Fortunately, local media reported that the fire was swiftly contained, resulting in no injuries or disruptions to production. Additionally, Eneos was in the process of scheduling an extensive turnaround for its Mizushima-A Group I plant, set to commence from late August to early September. This turnaround was projected to span three months.

Eneos had also made the decision to permanently close its Wakayama refinery, which is responsible for producing Group I base oils. The closure was slated for October of the current year, following the permanent shutdown of the company’s Negishi CDU 1 and base oils plant in October 2022.

These plant-related events coincided with a sudden surge in demand for base oils, driven by buyers who had postponed their purchases and were now eager to secure supplies before facing potential further price increases. This increased demand was fueled by the ongoing upward trajectory of crude oil and feedstock values.

Base Oil Trends In china

The escalating crude oil prices did not raise significant concerns among certain Chinese refiners. They had managed to secure substantial discounts on Russian oil since the commencement of the Russian-Ukraine conflict. Additionally, China had diligently amassed significant crude oil inventories throughout the first half of the year. Meanwhile, the demand for base oil in China remained subdued, and enthusiasm for imports remained tepid at best.

Even though domestic base oil facilities were operating at reduced run rates, blenders seemed capable of maintaining production by primarily relying on local resources. However, there were reports of some grades experiencing tightening due to China’s inherent shortage of heavy-viscosity cuts, such as bright stock. Importers were actively seeking bright stock cargoes but displayed resistance to the higher price offers circulating in the market during the current week.

Nevertheless, overall demand in China remained sluggish, primarily due to uncertainties stemming from lower-than-expected economic growth. Ailing conditions in critical sectors like construction and real estate development further compounded the slowdown. Additionally, reduced industrial output, influenced by lackluster consumer goods sales and weakened demand for certain Chinese exports, translated to lower consumption of industrial lubricants.

The commencement of operations at the newly established Hongrun Petrochemical Group III facility in China only intensified the challenges facing the well-supplied Group III segment in the Asian market. While interest in Group III remained consistent, the availability of supplies had significantly expanded. This was largely attributed to the efficient operations of most facilities across Asia and the Middle East, causing downward pressure on prices.

The unexpected shutdown of the Hyundai and Shell Base Oil Co. facilities, as mentioned earlier, had resulted in a reduced supply of base stock from this particular supplier. Nevertheless, other South Korean producers appeared to have successfully concluded several transactions for September, including shipments to China. Notably, there were reports of a 1,500-metric ton cargo scheduled for shipment from Onsan to Zhenjiang in early September, alongside another cargo destined for Jingjiang during the same period. Additionally, approximately 2,800 tons were anticipated to be shipped from Onsan to Wakayama, Japan, in mid-September. Further, a 2,000-ton shipment was quoted for dispatch from Yeosu to Tanjung Priok, Indonesia, in late September, with another 2,000-ton cargo likely to be shipped from Yeosu to Haiphong, Vietnam, around the same time. Lastly, there was mention of a 1,000-ton lot on the table for lifting in Onsan, bound for Vietnam in early October.

Base Oil price In Asia

Base oil spot price assessments exhibited mixed trends in Asia during the current week. Prices for several grades edged upward, while some remained unchanged compared to the previous week, and others experienced a weakening trend. The price ranges mentioned below encompass discussions, bids, offers, actual deals, and widely recognized published prices used as benchmarks in the region.

Ex-tank Singapore prices generally remained stable. The Group I solvent neutral 150 grade remained unchanged within the range of $800/t-$830/t, while the SN500 also maintained stability at $920/t-$960/t. Bright stock prices hovered in the bracket of $1,070/t-$1,110/t, all on an ex-tank Singapore basis.

Prices for the Group II 150 neutral were assessed at $930/t-$970/t, and the 500N grade also held steady within the range of $990/t-$1,030/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 prices saw an increase of $20/t, reaching $690/t-$730/t, while the SN500 exhibited a more significant jump of $40/t, bringing it to $830/t-$870/t. Bright stock prices rose by $20/t, now ranging from $880/t to $920/t, all on an FOB Asia basis.

In the Group II segment, the 150N grade was assessed at $810/t-$850/t FOB Asia, representing a $10/t increase, while the 500N grade also saw a $10/t uptick, reaching $860/t-$900/t, FOB Asia.

Within the Group III category, prices for the 4 centiStoke and 6 cSt grades experienced a decline this week due to abundant supplies and competition among suppliers. The 4 cSt grade was assessed lower by $10/t, now standing at $1,380-$1,410/t, and the 6 cSt grade also dipped by $10/t to $1,340/t-$1,380/t. On the other hand, the 8 cSt grade remained unchanged at $1,070-$1,110/t, with limited discussions. All indications pertained to FOB Asia prices for fully approved products.