Concerns have emerged regarding the stability of various Asian nations due to the ongoing economic fluctuations in China. Being the world’s second-largest economy, China wields considerable influence over factors like industrial output, consumer needs, and the overall economic welfare of neighboring countries. An illustration of this influence lies in China’s substantial imports of base oils from Southeast Asia, although recent months have witnessed a decrease in such activity. Projections made by investment banks paint a less optimistic picture of China’s economic expansion, with estimates placing growth at sub-5% levels. This level of growth hasn’t been observed since the early 1960s, barring the pandemic-impacted years. Notwithstanding these uncertainties, the prices of Asian base oil appear to be maintaining a consistent trajectory. This stability can be attributed in part to the tightening balance between supply and demand, as well as the unwavering prices of crude oil and feedstock.
Base Oil Trends In China
In the past quarter, the reception of base oil imports from Thailand, Indonesia, and Singapore by China experienced a decline. This can be attributed partially to patterns that emerge with changing seasons, and also due to constrained availability of specific grades, caused by both planned and unexpected halts in production across Southeast Asia. The uncertainty surrounding the demand for lubricants in the upcoming months has further contributed to this decrease. Normally, there is a surge in the demand for lubricants and base oil in China during September, leading up to the National Day and Golden Week holidays spanning from September 30 to October 6. These holidays are associated with extensive travel within the population. However, this year, the strength of this trend seems to be wavering. Concurrently, Chinese refineries have been augmenting their fuel inventories, particularly diesel, in anticipation of an upswing in demand. This preparation has subsequently led to restricted exports of these fuel products, thereby resulting in an escalation of prices within the region.
The demand for base oil within the country was assessed as satisfactory to cater to the majority of needs in China. Blenders showed a preference for acquiring only essential quantities to ensure the continuation of operations while avoiding surplus inventory buildup. Despite a decrease in interest in imported purchases, discussions revolved around the possibility of South Korean shipments heading to China in the present month. Specifically, plans were mentioned regarding the transportation of a 1,500-metric ton consignment from Onsan to Tianjin by the end of August. Furthermore, it was anticipated that a 1,000-ton batch would have been transported from Onsan to Zhangjiagang the prior week, accompanied by another 1,000-ton cargo from Yeosu to Rugao.
Alongside these developments, China had been a recipient of notable quantities of API Group II grades from Taiwan. However, information surfaced that the Taiwanese producer had scaled back shipments as part of inventory accumulation to meet term requirements during a planned shutdown scheduled for October. Shipments originating from South Korea also experienced a decline. Compounded by prevailing market conditions, certain domestic facilities in China had reportedly either reduced operational rates or enacted temporary shutdowns. Adding to the dynamics of the situation, news emerged of a new Group III unit commencing operations this month. This event was projected to influence a decrease in Group III imports from regions like Asia and the Middle East.
Interestingly, discussions circulated about a significant Group III producer in China collaborating with a distributor to export surplus production to the United States. This decision appeared to be guided by the more attractive pricing in the U.S. market as opposed to other destinations.
Base Oil Trends In Southeast Asia
Market participants maintained vigilant attention on the oscillations of crude oil and feedstock prices. While the rapid surge in crude oil values that had been evident since June seemed to have moderated, the prices lingered at elevated altitudes, continuing to apply upward pressure on base oils and assorted refined products. Concurrently, the strengthening of diesel prices, coupled with improved margins in comparison to base oils, provided an appealing incentive for refiners to channel an increased stream of feedstocks into distillate production. As a result, the output of base oil experienced a decline, particularly notable in Southeast Asia, leading to a tightening of specific grades and thereby sparking a series of price hikes.
Simultaneously, the demand for base oils displayed robustness in Southeast Asia, contributing to a decline in export volumes, particularly within the realm of Group I grades. Nonetheless, a consistent appetite for imports persisted. Conversations circulated regarding the movement of approximately 5,500 metric tons of base oils from Yeosu, South Korea, to Southeast Asia towards the end of August. Furthermore, hints of negotiations taking shape for shipments in September came to light. Within this landscape, pricing dynamics saw the Group I and Group II segments exhibit signs of strengthening, while values within the Group III sector achieved a level of stability, even as the supply remained substantial.
Base Oil Trends In India
Comparable price trends were similarly observable in the Indian market, characterized by a blend of demand dynamics and pricing shifts. Group I and II prices exhibited marginal upward movements, while Group III values underwent a slight decline. Approaching the conclusion of the monsoon season, the prospect of replenishing base oil inventories prompted buyers to display a renewed interest. Correspondingly, suppliers amplified their offerings for grades that were witnessing heightened demand. These inclinations received supplementary reinforcement from the stable stance of crude oil and feedstock prices.
In contrast, local suppliers chose to reduce prices as a strategic maneuver to safeguard or expand their market presence. Indications emerged hinting at the potential introduction of fresh Group II and Group III capacity from a domestic producer, tentatively set to come online in the latter part of September or early October. Several Indian refiners continued to enjoy the privilege of processing Russian crude, which came at a discounted rate due to international sanctions. In the midst of these considerations, refiners were poised to assess the comparative advantages of augmenting fuel production versus maintaining the ongoing levels of base oil output.
Base Oil price In Asia
In the Asian market, assessments of base oil spot prices displayed a general stability with some instances of upward movement this week. The provided price ranges take into account a range of discussions, bids, offers, deals, and established benchmarks for the region. In ex-tank Singapore prices, the majority remained steady, while certain grades demonstrated increases on a weekly basis. For instance, the Group I SN 150 grade was evaluated within the range of $800/t-$830/t, with SN500 holding firm at $920/t-$960/t. Meanwhile, the price range for bright stock remained at $1,070/t-$1,110/t, all ex-tank Singapore.
Within the Group II category, the 150 neutral saw prices in the range of $920/t-$960/t, with the 500N grade inching up by $20/t to land between $980/t and $1,020/t, ex-tank Singapore. When considering an FOB Asia basis, Group I SN150 prices maintained stability at $670/t-$710/t, while SN500 also remained unchanged at $760/t-$800/t. However, bright stock prices experienced a $10/t uptick, reaching $840/t-$880/t on an FOB Asia basis.
In the Group II segment, the 150N grade registered a $10/t increase, now priced at $790/t-$830/t FOB Asia, while both the 500N and 600N cuts also advanced by $10/t, reaching $840/t-$880/t on an FOB Asia basis.
Within the Group III category, prices remained mostly consistent, occasionally showing slight upward movement. The 4 centiStoke grade maintained an unchanged assessment at $1,410-$1,440/t, while the 6 cSt grade ranged between $1,370/t-$1,410/t. The 8 cSt grade experienced a $10/t increase, adjusting to $1,070-1,110/t FOB Asia, reflecting discussions for fully approved products.
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