FocusUS naphthenic base oil prices surge on tight supply

11 August 2010 22:27  [Source: ICIS news]

By Heather Doyle

HOUSTON (ICIS)--US naphthenic base oil prices have surged by up to 6% in August from July and supplies remain squeezed, sources said on Wednesday.

An industry-wide round of hikes of up to 15 cents/gal ($45/tonne, €34/tonne) was fully absorbed in the market, buyers and sellers confirmed.

“In some cases, buyers have offered to pay more for some grades just to get additional supply,” a seller said. “But the market is allocating material and supplies are limited.”

Adding to tight supply, increased interest has emerged from Asian buyers for US product.

Market players said Chinese naphthenic base oil refineries had been producing around 20% less than their normal output in 2009 and were expected to remain at reduced levels this year.

The lower China production was attributed to poor gasoline and diesel sales, which led to lowered refinery outputs.

“Not only is supply tight but demand for pale oils used in grease, transformer oils and tyres had exceeded expectations, and our monthly requirements have already been used up in one day for August,” a Chinese buyer said.

US and Latin America produce 58% of the naphthenic base oils made in the world, so overseas buyers hugely depend on the US for product.

Meanwhile, increased demand from the tyre sector for Pale 2000 was consuming much of the US product and limiting the availability of exports from the US.

“Exports are commanding a premium over domestic sales,” a seller said.

Pale 2000 was talked at $3.25-3.35/gal among term buyers, but offered at $3.50/gal or more on the spot market.

Demand for heavy naphthenic base stocks has escalated worldwide as tyre makers seek to replace their formulations because of a 2010 European directive, which bans all tyres containing distillate aromatic extracts (DAE) on Europe’s roads beginning in 2010.

Most tyre makers have focused on a universal changeover and adopted the same formulas for Asia and the Americas, a buyer said.

($1 = €0.76)

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By: Heather McGuire Doyle
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