FocusMideast SN500 base oil prices fall on weak market, Europe lots

13 July 2012 05:56  [Source: ICIS news]

Mideast SN500 base oil prices fall on weak market, European lots By Andrea Heng

SINGAPORE (ICIS)--Group I base oil prices in the Middle East have come under pressure, posting a sharp decline with the downtrend likely to continue in line with softer discussion levels and the presence of lower-priced European cargoes, market players said on Friday. 

The prices of SN500 cargoes started falling over the last two weeks from $1,160-1,200/tonne (€951-984/tonne) CFR (cost & freight) UAE (United Arab Emirates) during the week ended 28 June to $1,050-$1,100/tonne CFR UAE in the week ended 12 July, a decline of nearly 10%, according to data from ICIS

Buyers’ indications are at the low $1,000s/tonne CFR UAE, with some targeting prices at the mid-$900s/tonne CFR UAE because of the recent influx of competitively priced European cargoes, resulting in an open arbitrage window.

Group I prices in Europe dropped by $45/tonne during the week ended 10 July because of weak demand, leading sellers to seek alternative outlets for their cargoes.

A cargo of more than 5,000 tonnes of Europe-origin Group I base oils of a high viscosity index (VI), comprising SN150, SN500 and brightstock, was offered in the previous week to both India and the UAE. The parcel was eventually sold to buyers in India at $1,070/tonne CFR, according to ICIS data.

A separate 4,000 tonne cargo of Europe-origin Group I high VI material was heard to be offered to both regions at $1,020-1,040/tonne CFR, but there were no deals concluded, according to market sources.

Despite the presence of the cheaper European cargoes, buying interest was weak as customers in the UAE prefer to wait for Iranian refiners Sepahan Oil and Iranol Oil to announce fresh offers in the next 10-14 days.

“We offered the 4,000 tonne cargo to the UAE from a major supplier in Europe, but this failed to attract buying interest because the buyers in this region want to wait for the Iranian refiners to adjust their prices accordingly,” a trader said.

A second trader said: “Traditionally, the two majors in Iran take a long time to adjust their prices according to the current market sentiment – that’s why the buyers are willing to wait.”

According to market participants, the situation is expected to worsen in the near term with the approach of Muslim fasting month of Ramadan on 20 July-19 August, which will result in a production slowdown in line with weak end-user consumption.

The difficulty in shipping Iranian product as a result of the reaffirmed sanctions from 1 July has added to the slow trade.

“The downtrend will continue into the next month and most buyers are going to place indications at below $1000/tonne CFR UAE for SN500 cargoes,” a Dubai-based buyer said.

Traders in the UAE with some inventory of SN500 are considering liquidating their higher-priced cargoes, which were purchased prior to a shutdown at Sepahan’s Isfahan 400,000 tonne/year base oil unit in May-June.

“Buyers are asking for $1,140-1,160/tonne ex-tank Sharjah, but it will be difficult as our margins will be squeezed if we sell at anything at below $1,180/tonne ex-tank Sharjah,” a trader said.

With pressure from buyers and lower-priced cargoes from Europe, market players said the Iranian refiners will soon have to succumb to softer price ideas.

Most have taken a wait-and-see approach as the two suppliers are expected to issue fresh tenders in the next two weeks.

($1 = €0.82)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Andrea Heng
+65 6780 4359

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