Weekly Asia Base Oil Report: 17 – 23  September 2023

Market participants closely monitored the base oil landscape, with a keen eye on the fluctuations in crude oil and feedstock prices. The upward trajectory of these values had a dual impact, exerting pressure on base oil prices while also influencing the operations of refineries. Some refineries opted for diverting their production towards gasoil and other distillates, driven by more appealing profit margins and robust demand. The combination of reduced plant operating rates and ongoing turnarounds further compounded the tightening of base oil supplies, providing additional bolstering to the notions of price hikes.

Beyond the reduction in output, a renewed surge in buying interest from Southeast Asia and India was anticipated to trigger a depletion of existing producer inventories. This development was viewed positively, especially given the rather lackluster consumption levels experienced over the past three months. Nevertheless, the availability of certain grades, such as API Group I cuts, had grown scarce, and prospects for an immediate change in this situation seemed bleak. Conversations revolving around Group I and Group II shipments had intensified, but the limited availability of spot deals constrained the volume of business that could be successfully transacted.

Base Oil Trends In Southeast Asia

In Southeast Asia, there’s been a notable surge in import activity, with various shipments reaching destinations like Vietnam, the Philippines, Indonesia, and Singapore. Additionally, reports indicate an uptick in domestic demand in both Thailand and Indonesia. Exports from Malaysia encompassing Group III grades and Thai Group I cuts are in the pipeline, destined for Southeast Asia and the Middle East. A shipment of 5,000 tons was under discussion, set to load in Rayong, Thailand, and head to Hamriyah or Ras Al Khaimah in the United Arab Emirates, scheduled for late October. Another cargo of 1,000 metric tons was quoted for shipment from Onsan, South Korea, to Ho Chi Minh, Vietnam, during the first week of October. In addition, a 1,000-ton lot was anticipated to be transported from Onsan to Merak, Indonesia, in late September. Furthermore, a cargo weighing 1,370 tons was quoted for immediate shipment from Singapore to Godau, Vietnam. Plans also include the lifting of approximately 2,000 to 3,000 tons from either Malacca, Malaysia, or Dumai, Indonesia, to Zhenjiang, China, during the first half of October.

The supply of Group I base oils in Thailand is reportedly stretched thin due to robust domestic demand and strong export activity. Furthermore, the region faced additional constraints with an extended Group I plant turnaround taking place in Japan. Japanese producer Eneos embarked on an extensive turnaround project at its Mizushima-A Group I plant, commencing in early September, and the program was projected to last for a duration of three months. In a strategic move, Eneos also decided to permanently shutter its Wakayama refinery, which is a significant producer of Group I base oils, with the closure set for October of the current year. This decision follows the permanent shutdown of Eneos’ Negishi CDU 1 and Group I base oils plant in October 2022.

The availability of Group II base oils in the region has also experienced tightening, and the resumption of production at a South Korean facility is not anticipated to provide immediate relief. Reports suggest that the Hyundai and Shell Base Oil Co. Group II plant in Daesan recently recommenced production following a turnaround, but there could be potential reductions in operating rates as the refiner intends to ramp up distillate production. A prior fire incident at the associated refinery had constrained the supply of feedstocks, adding to the challenges.

Meanwhile, Formosa Petrochemical, the sole Taiwanese Group II producer, is gearing up for a two-month plant shutdown in Mailiao scheduled for October. To mitigate the impact of this outage, the producer has been building up inventories to meet term requirements, resulting in limited spot sales within the region and fewer shipments to China. Taiwan traditionally exports Group II base oils to India as well.

Base Oil Trends In India

In India, Bharat Petroleum has reportedly slated a refinery turnaround in Mumbai for this month, which will entail a partial shutdown of the base oils plant, thereby affecting Group II production.

In India, there has been a resurgence of buyer activity as they seek to replenish their stocks in anticipation of an upcoming surge in demand for finished products. This heightened demand is expected in a few weeks as India gears up for Diwali, the country’s grandest festival celebrated in early November. The monsoon rains had previously subdued base oil requirements, but with the season winding down in September, blenders are anticipating a boost in lubricant demand. This optimism is further fueled by positive projections for India’s economic growth, which is poised to drive increased industrial activity and a greater need for industrial lubricants.

Despite the emergence of higher spot offers during the week, Indian buyers have remained somewhat resistant and are leaning more towards contract volumes and domestic supplies. On the other hand, suppliers have held firm on their pricing without showing willingness to make downward adjustments. Interest in lighter viscosity grades, particularly for use as fuel extenders, remains strong. The elevated gasoil prices have added support to the expectation of steeper base oil prices, with CFR India indications for Group I and Group II availabilities witnessing an increase ranging from $15 to $25 per metric ton week on week.

Reports indicate discussions about several cargoes destined for India, including approximately 3,500 metric tons set to be loaded in Ulsan, South Korea, during the first half of October. Additionally, a 1,500-ton shipment from Ulsan to Mumbai is planned for mid-October, while a more substantial volume of about 7,000 to 12,000 tons is expected to be transported from Onsan to Mumbai in mid-September. Furthermore, a 10,000-ton cargo has been quoted for lifting in Daesan, heading to Hazira and/or Mumbai and Hamriyah in late September.

In China, the base oil demand appears to be gradually recovering, and there is an improvement in interest for imports. However, prices are currently deemed uncompetitive due to the weakening of the Chinese currency against the U.S. dollar.

Base Oil Trends In China

While domestic production seemed capable of satisfying the majority of demand, there was one notable exception: the heavy-viscosity grades, particularly Group I bright stock, which China has persistently struggled to secure. The scarcity of this grade extended across Asia, with no fresh spot offers on the horizon. Conversations predominantly revolved around contractual shipments scheduled for September and October. Discussions included a 1,500-metric ton cargo set to travel from Onsan to Zhenjiang in the initial week of September, along with a smaller shipment destined for Zhangjiang during the same period. Furthermore, approximately 2,500 tons were anticipated to make their way from Onsan to Jingjiang in early September, and there were deliberations regarding a modest cargo for dispatch to Dongguan. In addition, there was mention of a 4,000-ton batch intended for shipment from Rayong, Thailand, to Nantong in late October.

Base Oil price In Asia

In the Asian base oil market, spot price assessments displayed a mix of movements this week. Prices for several grades witnessed upward shifts, some remained unchanged, and others experienced slight declines. The price ranges provided below encompass discussions, bids, offers, recent deals, and widely acknowledged benchmark prices for the region.

Ex-tank prices in Singapore were generally stable to slightly firmer. The Group I SN 150 grade saw a $10/t increase at the upper end of the range, reaching $800/t-$840/t, while the SN500 grade also rose by $10/t, reaching $930/t-$970/t. Bright stock prices held within the range of $1,070/t-$1,110/t, all ex-tank in Singapore.

Moving to Group II base oils, the 150 neutral grade was assessed $10/t higher at $940/t-$980/t, and the 500N grade rose by $20/t to $1,010/t-$1,050/t, ex-tank in Singapore.

On an FOB Asia basis, Group I SN150 experienced a $20/t increase, reaching $710/t-$750/t, while the SN500 grade climbed by $10/t to $840/t-$880/t. Bright stock prices saw a $10/t rise to $890/t-$930/t, although offers remained limited.

In the Group II segment, the 150N grade was assessed up by $20/t at $830/t-$870/t, FOB Asia, and the 500N grade also edged up by $10/t to $870/t-$910/t, FOB Asia.

Within the Group III category, prices for the 4 centiStoke and 6 cSt grades declined once more due to ample supplies and competition among suppliers. The 4 cSt grade witnessed a $20/t drop, now ranging from $1,360-$1,390/t, while the 6 cSt grade also fell by $20/t to $1,320/t-$1,360/t. In contrast, the 8 cSt grade remained unchanged at $1,070-$1,110/t, with limited trading activities. All price indications are FOB Asia for fully approved products.