31 October 2012 15:38 [Source: ICIS news]
LONDON (ICIS)--Monthly Group I base oil prices in South Africa have fallen for all grades by up to 4% because of an oversupply, buyers and traders said on Wednesday.
The move came contrary to some players' previous expectations, with many buyers bracing themselves for increases. The reason for such possible increases was a delayed local reflection to prices rises that took place in the European and Baltic Sea export markets during August and September.
The rand has also weakened considerably versus the dollar over the course of October, thereby putting upward pressure on prices in rand terms.
However, local market fundamentals appear to have overridden external influences, with players pointing to an oversupply of material and slack demand as the main factor in the price decrease.
Demand has been underperforming for much of 2012 as a consequence of the general global economic malaise. South Africa’s economy has been particularly impacted by its close links with the struggling European economy.
Furthermore, widespread labour strikes in recent months have had a negative impact on the economy, the value of the rand and on base oil demand directly.
The direct impact on base oil demand has come through reduced industrial and engineering activity during the strikes, as well strikes in the transport sector which reduced demand for automotive lubricants while also inhibiting the distribution of base oils and finished lubricants.
While the transport strikes have ended, labour action in the mining industry is ongoing.
The effect of the poor demand has been a build up of base oil inventories, and sources believe the price reductions are an effort to stimulate buying and shift stock.
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