This situation is evident in China, where heavy viscosity grades in general seem to be structurally short, forcing consumers to secure imported products. China has increased production capacity of Group II grades, which can replace some Group I cuts, reducing the country’s reliance on imports.

However, it is difficult to substitute bright stock in many applications, and China has therefore tried to find ways to import more bright stock at competitive prices as well as increase domestic production. In fact, China is one of the few countries that actually plans to have an expansion at an existing Group I plant. The PetroChina Group I plant in Fushun, Liaoning province, which has an existing Group I capacity of 260,000 metric tons per year, is scheduled to add 70,000 t/y of Group I bright stock capacity this quarter, although no confirmation of a start-up date could be obtained.

Another producer that is hoping to bring a similar product to Group I bright stock into the market next year is ExxonMobil, but it will be a Group II base oil cut produced as of 2025 at an expanded Group II facility in Singapore.

Base oil demand has dwindled in China given seasonal patterns, with buying interest for imports weakening over the last few weeks as consumers are able to meet most of their requirements by purchasing domestic products. During much of the last two months, Group II import volumes had risen on favorable arbitrage conditions as domestic prices were higher than those for imported products, but local producers have adjusted prices down, making them more competitive against imports. Consumers also preferred to avoid transportation issues, such as port congestion, whenever possible. At the same time, there have been attempts by a domestic Group I producer to export Group I grades to Southeast Asia.

There has also been a drop in Group II imports given a newly reimposed Chinese tariff on Taiwanese base oils, which has discouraged the sole Taiwanese Group II producer, Formosa Petrochemical, from apportioning the largest part of its monthly production for export to China. The producer has since been heard shipping cargoes to other destinations in the Middle East and India.

Growing availability of Group II heavy grades in Asia given lackluster demand and healthy output levels has placed pressure on pricing, with lower bids countered by suppliers’ efforts to hold onto current offers, particularly in view of a potential demand uptick in China next month ahead of the Golden Week holidays in late September. There has also been growing buying interest for Asian cargoes from the U.S. and Latin America, but these transactions were more difficult to conclude given high freight rates and more complicated logistics.

Conversely, there has been a tightening of Group III grades, with demand remaining buoyant, particularly as more Asian exports moved to the United States, and the upcoming turnaround at the SK-Pertamina plant in Dumai, Indonesia, expected to put a dent on availabilities. The turnaround, which was originally scheduled for May, was later postponed to July, and has now been rescheduled for August. The maintenance program will likely reduce regional short-term Group III inventories, but the producer was expected to build inventories to cover term obligations.

S-Oil has also scheduled a turnaround at its Onsan plant in September/October, which might affect availability of all grades, but the producer was expected to build inventories ahead of the outage as well.

In India, the ongoing monsoon season and heavy flooding in many areas have not only dampened demand, but have also caused disruptions in industrial activities and transportation. Most buyers had made sure to secure enough inventories to cover for these challenging supply conditions and did not appear anxious to purchase additional volumes.

Prices for imports of most grades were largely stable, although bright stock and the heavy-viscosity Group II 500N saw moderate increases of around U.S.$5 per ton to $10/t on a CFR India basis on limited offers and expectations of increased demand once the monsoon season ends in September. Likewise, Group III selling indications have ticked up slightly as supplies have tightened and activity in the automotive sector was expected to improve following the monsoons.

Domestic Group I and Group II producers in India have also been actively trying to capture market share by offering competitive pricing and this was seen as an added incentive for many buyers who preferred not to have to rely solely on imports. A turnaround at a domestic facility starting next month would coincide with a period of reduced activity, which could temper the shutdown’s impact on availability.

Market participants were keeping an eye on crude oil and feedstock prices, as numbers have been slightly erratic in recent days. After sliding during three consecutive sessions on disappointing China economic news, crude oil futures rebounded on Wednesday on lower U.S. crude inventories, an uptick in gasoline demand and risks that wildfires in Canada could disrupt production.

On July 25, Brent September 2024 crude futures were trading at $82.37 per barrel on the London-based ICE Futures Europe exchange, from $84.79 on July 18.

Dubai front month crude oil (Platts) financial futures for August 2024 settled at $79.89/bbl on the CME on July 24, compared to $83.63/bbl on July 17.

Base oil spot prices in Asia were mixed, with some prices seeing downward adjustments on lengthening supplies and subdued buying interest, and others firming on tightening availability. The price ranges portrayed 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 grade was steady at $890-930/t, and the SN500 was holding at $1,040-1,080/t. Bright stock was hovering at $1,280-1,320/t, all ex-tank Singapore.

Prices for the Group II 150 neutral slipped by $10/t to $950-990/t, but the 500N was holding at $1,060/t-$1,100/t, ex-tank Singapore.

On an FOB Asia basis, Group I SN150 was slightly lower by $10/t at $750-790/t, and the SN500 was steady at $920-940/t. Bright stock prices were assessed unchanged at $1,060-1,100/t, FOB Asia.

The Group II 150N was heard at $790-830/t FOB Asia, and the 500N was steady at $910-950/t FOB Asia.

In the Group III segment, 4 cSt, 6 cSt and 8 cSt prices edged up from the previous week on tightening supplies. The 4 cSt grade was up by $10/t at $1,120-1,160/t, and the 6 cSt was also adjusted up by $10/t at $1,130-$,170/t. The 8 cSt cut moved up by $10/t as well to $1,010-1,050/t.

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.