FocusAsia base oil gains wiped as demand falls

12 November 2008 04:49  [Source: ICIS news]

By Anu Agarwal

 

SINGAPORE (ICIS news)--Asian base oils have gone back to where they started this year, tracking the movement of global crude oil prices amid slowing regional demand, Asian buyers and sellers said on Wednesday.

 

Export prices of Group I and II 150 neutrals were hovering at $830-930/tonne FOB (free on board) Asia on Tuesday, levels last seen in the beginning of 2008 and sharply lower than the $1500/tonne FOB Asia mark seen not too long ago in the third quarter.

 

These prices reflected offers from Asian base oils producers in southeast Asia, South Korea and northeast Asia.

 

Offers for brightstock, the heavier grade of base oils used for making marine lubes and the one whose supply had been tight this year, also fell to $1,350-1,400/tonne FOB Asia from around $1,600/tonne as offtakes from the marine lubes sector dropped. 

 

At 12:29 Singapore time (04:29 GMT), light sweet crude for December delivery was at $59.11/bbl, continuing to soften following a 5% decline on Tuesday and a far cry from its peak of $147/bbl in July.

 

A big drag on base oils prices came from China, where buyers have almost totally withdrawn from spot purchases, said several regional producers.

 

China is the largest base oils importer in Asia, taking in an average 130,000 tonnes/month during the first eight months of this year.

 

“Chinese buying has dropped nearly 60-80% during October and November,” said a regional producer, adding that Indian buying has also fallen some 20-30%.

 

Producers were stuck with high inventories, with several Asian refineries now either considering production cuts or already trimming output.

 

“There is continued difficulty in finding customers as the Chinese don’t want to discuss prices,” said a key northeast Asian producer.

 

Demand from India, another key spot market, was also lacklustre as falling prices failed to entice buyer interest, base oils importers said.

 

“There is no point giving offers to customers these days as there seems no interest in buying,” said a base oils importer and trader.

 

“With the automotive manufacturing plants in India cutting production, finished lube sales are down as no one wants to keep stocks,” said an Indian base oils producer.

 

Other factors associated with the global credit crisis that had made opening and confirming letters of credit (LCs) difficult, had also slowed down trades, said some Indian base oils buyers.

 

What was not clear was how much of this slowdown was the effect of destocking and how much was due to the real slowdown in demand from the finished lubes sector, said some market players.

 

“We see some export business returning after base oils prices dropped,” said a large southeast Asian blender with regards to exports of finished lubricants.

 

But even now, most end users are running down old stocks and do not want to keep any inventory, he added.

 

Some base oils producers said they were hopeful that current price levels might bring demand back and help stop the downward spiral in values.

 

“At around $850/tonne FOB Asia for Group I/II 150 and 500 neutrals, we should be close to a bottom in pricing,” said a Korean base oils producer.

 

Others, however, were not so certain that a bottom had been reached. The real effects of demand slowdown were still being felt and could drag down numbers lower in the coming weeks, some said.

 

New capacities of base oils in Asia like the recent start up of Petronas’s 300,000 tonne/year base oils refinery in Malacca, Malaysia could also add to the supply pressure, said some industry players.

 

Nearly 60% of the production from Petronas is intended for exports to the Americas and Europe but some volumes would be offered to Asian buyers, they added.

 

Base oils are used for producing automotive, marine and industrial lubricants.

 

Key Asian producers include Exxon Mobil, Shell, S-Oil, SK Energy, GS Caltex and Nippon Oil.

 

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By: Anu Agarwal
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