API Group I grades continued to be described as tight because the number of plants producing them has declined over the last twenty years, and only a few facilities continue to produce Group I in Southeast Asia and Japan, while demand for some grades such as bright stock continues largely unabated. This led to a tightening of supplies and firm prices. While other grades appeared more easily swayed by changing market conditions, bright stock managed to maintain a fairly steady ascent since the beginning of the year, although values have lost their edge more recently as demand for base oils in general has weakened in Asia and Southeast Asian availability has increased.

Conversely, Group II supplies have been more abundant because of lackluster demand and high operating rates at Group II plants, and these cuts have been more exposed to price swings. There appeared to be surplus availability of the lighter grades, with suppliers more willing to grant discounts for these cuts or offer heavy-viscosity grades on condition that they be purchased in combination with light grades.

Demand for the heavy grades was said to have firmed because of heightened requirements from the industrial and marine segments as consumers use more Group II grades to replace Group I cuts, which remain tight. Northeast Asian suppliers were heard to be eyeing opportunities to ship Group II light grades to the United States, where demand is firm and supplies are more limited.

Group III grades have been in a bubble, less exposed to downward pressure despite plentiful supplies because of an ongoing turnaround at one plant and an upcoming shutdown at a second facility, along with brisk export business to the U.S. However, the U.S. market was slowly saturating with Group III grades, both imported and domestically produced, exerting pressure on bids.

One of the main factors affecting base oil demand appeared to be seasonal patterns. Activity in many economic sectors was disrupted by the monsoons across the region, particularly India. The heavy rains and flooding forced the suspension of manufacturing and transportation operations, and the need to restock raw materials was therefore decreased. Most consumers in India replenish stocks before the start of the monsoon season in June and hope that existing inventories will allow them to pull through until the end of the season in September.

Despite these disruptions, the monsoons are a lifeline to many parts of the country – they deliver nearly 70% of the rainfall India needs to irrigate farms and fill reservoirs. Climate change and pollution have made the distribution of monsoon rainfall erratic in recent years, posing more difficulties for preparation and planning.

The SK-Pertamina plant in Dumai, Indonesia, was expected to have started a turnaround this month. The maintenance program was anticipated to affect regional short-term Group III inventories, but the producer was heard to have built inventories to cover term obligations.

Further down the road, in September, S-Oil has also scheduled a one-month turnaround at its Onsan, South Korea, plant, which might affect availability of all groups of base oils, but the producer was expected to build inventories ahead of the outage as well, and this would limit the shutdown’s impact on availability.

India imported numerous base oil cargoes during the first half of the year, but imports have declined, not only because of reduced demand, but because consumers prefer to secure products from local producers whenever possible. In addition, availability of certain grades has also tightened at some origins, such as the U.S., freeing less material for exports.

A turnaround at a local refinery was expected to have limited impact on availability of Group I grades. The price of imports, assessed on a CFR India basis, was largely steady week on week, with the exception of Group II 150 neutral and Group III grades, which were adjusted down by $5-10 per metric ton on lower bids and offers.

About 5,000 tons were being discussed for shipment from the Middle East to India in the second half of August. And a South Korean 40,000 metric ton cargo made up of base oils and chemicals was expected to be shipped from Yeosu to the west coast of India on the Maritime Meridian between September 1 and September 20.

In China, demand was sluggish for most grades, mostly attributed to weaker economic growth than forecast, which was particularly evident in the real estate sector. Base oil business did not show much strength, despite importers and traders’ efforts to attract buyers by lowering prices. There was some pressure on Group I import values, with the exception of bright stock, which continued to evade decreases as it remained in short supply, but domestic bright stock prices have edged down.

A Group II producer’s base oil unit remained shut down, which only had a moderate impact on availability of Group II grades, but was anticipated to resume production within the next few days. Several plants were heard to be running at reduced rates because of market economics and overall plentiful supplies of most cuts, even after the decrease in Group II shipments from Taiwan. At the same time, there has been renewed buying interest in South Korean heavy-viscosity cargoes, as import duties are lower than those for Taiwanese imports at the moment.

Group III import prices were reported lower in China, as volumes were said to be plentiful. A local producer has been able to gain market share as it is producing consistent, on-spec material. A Group III importer has lowered its prices to compete with the domestic supplies.

Suppliers hoped that buying appetite would improve over the next few weeks, ahead of the National Day holidays in early October, when large numbers of people travel leading to heightened demand for fuels and lubricants.

The sole Taiwanese Group II producer, Formosa Petrochemical, has decreased the volumes it ships to China given the re-imposition by Beijing of a 6% tariff on refined products from Taiwan, coupled with subdued buying interest for imports in China. Taiwanese cargoes have been making their way to India, Pakistan, the Middle East and other destinations over the last several weeks.

Most refineries in South Korea were heard to be running well, with S-Oil preparing inventories for a turnaround in September. The producer was heard to have limited its Group II spot sales amid efforts to build inventories. Other suppliers also appeared to have few spot cargoes available for September shipment, but this coincided with lackluster interest in additional volumes, aside from those acquired under contract. The price of the heavy-grades was maintained by most suppliers. In shipping circles, a 4,000-ton cargo was mentioned covering Pyongtaek to Ulsan last week.

Buying interest for Korean cargoes has softened in recent weeks because of a seasonal slowdown and hesitation on the part of buyers to acquire too much product when values are under pressure. Instead of focusing on intra-regional shipments, South Korean suppliers also explored export opportunities to the Middle East, Europe and to faraway destinations in South America. Regular shipments of Group III to the U.S. continued as well, as the U.S. relies heavily on Group III imports, despite the fact that domestic producers have increased output of Group III grades for internal consumption in recent months. While freight rates had climbed since November, when Houthi rebel attacks on commercial vessels started in the Red Sea and led to skyrocketing transportation and insurance prices, rates have come down recently.

Prices

Base oil spot prices in Asia were stable-to-soft, with some prices seeing downward adjustments on lengthening supplies and subdued buying interest. Price ranges below reflect discussions, bids and offers, as well as deals and published prices widely regarded as benchmarks for the region.

Ex-tank Singapore prices were stable to soft. The Group I solvent neutral 150 was hovering at $880-920/t, and the SN500 was holding at $1,040-1,080/t. Bright stock was assessed at $1,260-1,300/t, all ex-tank Singapore.

Prices for the Group II 150 neutral were assessed at $940-980/t, but the 500N was lower by $10/t at $1,050-1,090/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 moved down by $10/t to $720-760/t, but the SN500 was stable at $910-930/t. Bright stock prices edged down by $10/t to $1,050-1,090/t, FOB Asia on lower transaction levels.

The Group II 150N was assessed lower by $20/t at $750-790/t FOB Asia, but the 500N was steady at $910-950/t FOB Asia.

In the Group III segment, 4 cSt, 6 cSt and 8 cSt prices were unchanged due to the lack of transactions, but prices were exposed to downward pressure on growing supplies in different regions. The 4 cSt grade was holding at $1,140-1,180/t, and the 6 cSt was assessed at $1,150-1,190/t. The 8 cSt cut was unchanged at $1,030-1,070/t.

Buyers and sellers continued to keep an eye on crude oil prices given the recent sharp swings they have experienced. After falling to multi-month lows earlier this month, futures bounced back last week on worries about a wider Middle East conflict, following Israeli attacks on Iranian targets. Futures fell on Monday as China economic data fueled concerns about lower demand from the world’s top oil importer, while there were expectations that the U.S. Federal Reserve would cut interest rates in September.

Brent futures slipped to below $80 per barrel on Monday. On Aug. 19, Brent October 2024 crude futures were trading at $79.43/bbl on the London-based ICE Futures Europe exchange, from $80.23/bbl on August 12.

Dubai front month crude oil (Platts) financial futures for September 2024 settled at $78.19/bbl on the CME on Aug. 16, compared to $77.59/bbl on August 9.

Gabriela Wheeler can be reached directly at gabriela@LubesnGreases.com.

Lubes’n’Greases shall not be liable for commercial decisions based on the contents of this report.