Weekly Asia Base Oil Report: 19 – 25  August 2023

The landscape of the Asian base oils market was undergoing a notable transformation, as recent patterns seemed to veil their predictability, causing certain sectors to embark on fresh trajectories. Consequently, price dynamics exhibited a medley, with certain figures maintaining their status quo week after week, others ascending, and a handful experiencing a slight descent. These fluctuations were contingent upon the sway of supply and demand bedrock, or the elevated expenses tied to fuel and source materials.

Although the surge in crude oil costs didn’t immediately manifest as escalated values for base oil, the recent sustained climb in crude prices endured across multiple weeks. This prolonged ascent prompted refiners to reevaluate both their operational strategies and the pricing structures of their refined offerings. In certain scenarios, propelled by the buoyant prices of gasoil and a robust demand climate, refiners chose to channel more raw materials into distillates production, consequently dialing down their output of base oil. This, to some extent, contributed to a constriction in specific grades within the API Group I and Group II categories.

The appetite for Group I base oils remained robust within the region, even in the face of diminished buying interest from China, a country that conventionally imports heavier grades and bright stock due to a shortage in these variants. Southeast Asia’s Group I production maintained its steadiness, and while availability for September shipments was deemed satisfactory, it fell short of the expected abundance, owing to a portion of cargoes already being spoken for. The pace of August shipments was brisk, effectively eroding any excess inventory of products, leading some suppliers to exclusively offer flexibag-sized cargoes of particular grades. Given the snug availability of certain Group I variations, a handful of buyers switched their preference to Group II grades, wherever their formulations permitted.

The availability of Group II base oil has become more constrained due to concluded transactions over the past few weeks, as purchasers aimed to pre-empt potential price surges instigated by elevated crude oil costs. Anticipated plant turnarounds were projected to further strain the supplies of Group II variants. Consequently, suppliers have elevated their offering levels; however, buyers have exhibited partial resistance to the heightened prices. This resulted in incremental increments ranging from $10 to $20 per metric ton, contingent upon the specific grade.

Certain refiners are inclined to augment their distillates production in cases where the profit margins for base oil are deemed less appealing. This strategic shift not only aids in maintaining manageable inventories of base oils but also lends support to the indications of elevated prices.

Base Oil Trends In South Korea

The recent occurrence of an unplanned production setback at a South Korean Group II base oil facility also played a role in constricting regional supplies. The producer in question curtailed its operational rates due to shortages in feedstock supply caused by maintenance activities upstream at the affiliated refinery.

Furthermore, an upcoming scheduled shutdown at the singular Taiwanese producer of Group II base oil, slated for October, prompted the supplier to accumulate stockpiles in advance of the closure, leading to limited spot offers.

As the availability of Group III grades continued to expand, originating not only from Asia but also the Middle East, the resultant increased supply exerted downward pressure on pricing. This brought about a decline in figures by $10 to $20 per metric ton on a weekly basis.

This week has seen discussions regarding multiple export consignments originating from South Korea. Approximately 5,000 metric tons are projected to embark on a journey from Yeosu to Southeast Asia, slated for late August. Similarly, an allocation of around 2,000 tons has been earmarked for transportation from Yeosu to Rugao, China, expected to take place in mid-August.

Base Oil Trends In China

Furthermore, a shipment of 1,000 tons has been quoted for pick-up in Onsan, destined for Zhanjiagang, China, with the timeline also set for late August. Adding to this, a batch weighing 1,600 tons is under consideration for lifting in Onsan, bound for Taichung, Taiwan, with the timeline spanning from mid to late August. Lastly, a cargo of under 1,000 tons has been

China’s endeavor to bolster economic growth, a response to its relatively lackluster rebound following the relaxation of stringent COVID measures, has been perceived as insufficient in revitalizing sectors like real estate development – a pivotal driver of the country’s economy.

Unpredictabilities in the economic landscape coupled with sluggish consumer demand have cast their shadows on the base oils and lubricants sectors as well. Manufacturers of lubricants find themselves circumspect about the forthcoming demand for their finished goods, particularly within the automotive and industrial spheres. This hesitancy to commit to maintaining high inventories prevails. In specific instances, Chinese entities have explored the potential of exporting surplus cargo to destinations like India. Additionally, indications suggest that a distributor is contemplating exports to the United States.

The inauguration of a new Chinese Group III facility has faced delays, with expectations now pivoting towards a late August commencement. Concurrently, several other base oil units are navigating through maintenance periods, some of which have been extended due to unexpected shutdowns, while others operate at diminished capacities due to tepid product uptake.

Base Oil Trends In India

The distinctive market trends observed across Asia find their reflection in India, a pivotal market, where prices are regarded as relatively stable and possibly firming. Greater clarity on pricing is projected for the upcoming month, with the monsoon season drawing to a close and market engagement, along with demand, anticipated to regain momentum.

In the Indian market, the trajectory of Group I prices appeared to be steady, while Group II values have inched upward, influenced by elevated offers. The augmented costs of crude oil and fuel have extended additional reinforcement to the prevailing price notions. Nonetheless, local suppliers have ventured to offer reductions to safeguard their market presence. Certain refiners have managed to present competitive pricing due to their utilization of Russian crude oil, which arrives at a discount in comparison to crudes sourced from other origins. With an ample supply of Group III grades accessible, suppliers are grappling with the pushback of downward price pressure as they endeavor to secure new business.

Base Oil price In Asia

Prices within Singapore, excluding transportation costs, remained stable-to-firm. For instance, the Group I solvent neutral 150 grade was evaluated within the range of $800 to $830 per metric ton, while the SN500 variety held its position in the bracket of $920 to $960 per metric ton. Meanwhile, the bright stock variant maintained a range of $1,070 to $1,110 per metric ton, all on an ex-tank basis within Singapore.

The valuation for Group II 150 neutral observed a rise of $20 per gallon, settling at the range of $920 to $960 per metric ton, and similarly, the 500N category also experienced a $20 per ton increase, reaching $960 to $1,000 per metric ton. These figures are ex-tank prices within Singapore.

On an FOB Asia basis, Group I SN150 retained its stability within the range of $670 to $710 per metric ton, and the SN500 category likewise maintained an unchanged price bracket of $760 to $800 per metric ton. The pricing for bright stock persisted in the range of $830 to $870 per metric ton, calculated on an FOB Asia basis.

In the Group II realm, the 150N variant underwent an increment of $10 per ton, achieving a range of $780 to $820 per metric ton on an FOB Asia basis. Similarly, the 500N and 600N cuts saw an upward shift of $10 per ton, now priced within the range of $830 to $870 per metric ton, calculated on an FOB Asia basis.

Within the Group III domain, certain grades experienced a decline in prices due to increased availability and competitive pricing. Notably, Group III prices had maintained a consistent stance for most of the year, only beginning to exhibit a downtrend in June. The 4 centiSt grade underwent a depreciation of $20 per ton, marking a valuation of $1,410 to $1,440 per metric ton. Likewise, the 6 cSt grade observed a $20 per ton decline, now standing at $1,370 to $1,410 per metric ton. On the other hand, the 8 cSt grade held its position within the range of $1,060 to $1,100 per metric ton on an FOB Asia basis, applying to fully approved products.