Asia Base Oil Price Report（JUNE 7, 2019）

Asian base oil prices were weighed down by ample supply, weakening feedstock values and a lack of strong buying interest, but sellers appeared reluctant to adjust pricing due to the prevailing thin margins.

 

The Eid al-Fitr celebrations in several countries also resulted in fairly muted activity; the start of the monsoon season--which runs from June till September--has begun to affect demand in India, and the ongoing trade conflict between the United States and China was dampening activity as well.

 

Despite the weaker fundamentals, producers were holding off as long as possible on revising prices given that much of the product in their tanks has been produced while crude oil and raw material prices were much higher than they are now. Some claimed that if they sold base oils at lower levels, they would be incurring losses, and also reiterated that a decline in crude prices cannot be reflected in base stock prices overnight.

 

Crude oil futures tumbled this week and entered a bear market, analysts said, with West Texas Intermediate crude oil down more than 20 percent from its April high, and Brent dropping to its lowest levels since January.

 

Prices were pulled down by concerns about a slowdown in global economic growth rates, partly blamed on the trade disputes between the U.S. and China, and the U.S. and Mexico, amid geopolitical tensions in other parts of the world. Rising crude inventories in the U.S. also affected prices.

 

On Thursday, June 6, Brent August futures were trading at $60.60 per barrel on the London-based ICE Futures Europe exchange, significantly down from $69.82/bbl for July futures on May 30.

 

The spring production cycle for lubricants was wrapping up and demand had been slightly disappointing compared to previous years, sources said. The ample availability of base oil grades and the number of suppliers--both within Asia and from other regions – vying for the same market share resulted in a more complicated scenario and reduced sales for some sellers.

 

Most base oil plants in Asia were also running well, which contributed to the generous supply levels observed in the region. Only a couple of units in Japan were heard to be undergoing maintenance at the moment.

 

It was heard that JXTG Nippon Oil and Energy/Wakayama Oil Refining had taken its Group I base oils in Kainan off-line for a routine turnaround in mid-May, while JXTG's Group I Mizushima B plant had been shut down in April for maintenance as well. The Kainan plant can produce 177,000 metric tons per year of Group I base oils, while the Mizushima B unit produces 183,000 t/y of Group I cuts, according to Lubes'n'Greases Guide to Global Base Oil Refining.

 

Additionally, new base oil facilities were heard to have started production, or are close to coming on stream in China. 

 

There were reports that China's state-owned Shanxi Lu'An Taihang Lubricating Oil Corp.started base oil and wax production at its coal-to-liquids (CTL) plant in Changzhi city last month.

 

The base stock plant is part of Shanxi Lu'an Coal-based Synthetic Oil Co., a large coal-to-liquids complex in Changzhi city, running on coal feedstock supplied by Lu’an. The base stock plant will have capacity to produce 600,000 t/y of fluids, of which 350,000 t/y will be base stocks, a company official told Lube Report last year, when the plant was under construction.

 

Lu'An developed a unique low-cost, high value-added, and environmentally friendly lubricating oil derived from coal, which is plentiful in China, according to Shanxi province's official website.

 

Additionally, the Group II/III base oil plant at Hengli PetroChemical Co.‘s refinery in Changxing, near Dalian, was heard to have reached mechanical completion and was also expected to start up soon.

 

Aside from growing local production, China continues to import base stocks from the Middle East. Adnoc's Group III base oils are regularly shipped from the producer's plant in the United Arab Emirates, with a cargo anticipated to arrive in mid-June.

 

Given the lackluster market conditions and the ample availability of most grades, domestic prices in China were reported to have been lowered by the main producers this week.

 

Spot prices in other parts of Asia were also under downward pressure given weakening raw material prices and softer demand, but most indications remained unchanged this week as some price ranges underwent adjustments the previous week.

 

Ex-tank Singapore Group I prices for the solvent neutral 150 grade were unchanged at $740-$760/t per metric ton, while the SN500 was mentioned at $790/t-$810/t. Bright stock was holding at $900/t-$920/t, all ex-tank Singapore.

 

Group II 150 neutral was assessed at $780/t-$800/t, while the 500N was unchanged at $790/t-$820/t, ex-tank Singapore.

 

On an FOB Asia basis, Group I SN150 was assessed at $630/t-$650/t, and the SN500 grade was heard at $620/t-$640/t. Bright stock was hovering at $790/t-$810/t, FOB Asia.

 

Group II 150N was adjusted down by $10/t to $620/t-$640/t FOB Asia, while the 500N and 600N cuts were holding at $640/t-$660/t, FOB Asia.

 

In the Group III segment, the 4 centiStoke grade was assessed at $820-$860/t and the 6 cSt was at $830/t-$875/t. The 8 cSt grade was holding at $730/t-$760/t, FOB Asia for fully-approved product to reflect current discussion levels.