FocusMideast SN500 prices may rise on tight supply - sources

11 April 2012 04:59  [Source: ICIS news]

By Quintella Koh

Mideast SN500 prices may rise surge on tight supplyfor use in cars.SINGAPORE (ICIS)--Group I SN500 base oil prices in the Middle East region could rise in the coming weeks because of tight supply, market participants said on Tuesday evening.

The prices are on a free on board (FOB) Iran or cost & freight (CFR) United Arab Emirates (UAE) basis.

Supply of Group I SN500 is tight because of planned maintenance schedules and the absence of arbitrage opportunities from the Black Sea and Baltic Sea regions, said producers, traders, distributors and end-users in the Middle East region.

Iran’s largest base oils producer, Sepahan Oil, aims to shut its 400,000 tonne/year base oils plant in Isfahan province in the middle of May for maintenance that will take one month, a source close to the company said.

The plant produces Group I SN500, engine oil, industrial lubricants, automobile gear oil, greases and antifreeze, paraffin, heavy slack wax and rubber processing oil.

Traders and end-users are unable to import base oil cargoes from the Black Sea and Baltic Sea regions as the FOB Black Sea and FOB Baltic Sea quotes are priced at above FOB Iran and CFR UAE quotes.

Group I SN500 FOB Black Sea and Baltic Sea quotes were assessed at $1,185-1,220/tonne (€901-927/tonne) and $1,185-1,215/tonne respectively on 3 April, while Group I SN500 FOB Iran and CFR UAE prices were at $1,015/tonne and $1,100/tonne respectively on 10 April, according to ICIS.

Traders and end-users typically turn to Group I SN500 cargoes from the Black Sea and Baltic Sea regions when spot supply in the Middle East tightens.

Market participants said they are expecting Group I SN500 prices to increase by $100/tonne, or 9.9%, to $1,115/tonne FOB Iran in the coming weeks based on feedback from Iranian producers Sepahan Oil and Iranol. The CFR UAE quote will be at around $1,140/tonne after factoring in spot freight rates of around $25/tonne.

“The price increase will be hard to stomach, but this is the reality that buyers have to face. [Group I SN500] material is in short supply and if you need the cargo, you have to pay for it,” said a trader.

Blenders in the Middle East said they expect demand from the downstream lubricant sector to remain healthy in the second quarter of this year. However, demand is expected to start slowing in July as the Middle East region prepares for Ramadan, which will start on 20 July and last for 30 days.

($1 = €0.76)

By: Quintella Koh
+65 6780 4372

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