03 January 2013 10:11 [Source: ICIS news]
By Carl Roache
LONDON (ICIS)--The European Group I base oil market experienced a sustained period of slow demand towards the end of 2012 and the outlook for 2013 is uncertain, market sources said.
Across the board, prices declined steadily throughout the fourth quarter of 2012 as sellers competed for the scant business on offer.
Many believe this trend will continue.
“Q1 2013 will not be much better than Q4  and Q4 was not as good as we hoped for,” said a northwest European buyer.
“We are not forecasting a big pick up in the first quarter.”
The buyer said that the 2013 outlook was uncertain, amid global economic fragility and weakness in key consuming sectors, such as automotive.
Consumer confidence was yet to recover, it said.
The fourth quarter of 2012 disappointed in terms of base oil trade levels in both the domestic and export markets.
The price of certain domestic base oil grades declined by more than $120/tonne (€91/tonne) during the fourth quarter, while some export grades saw falls exceed $130/tonne.
Competitively-priced Group II base oils from other regions also contributed to the slow Group I trading seen domestically and on the export markets.
Upstream, feedstock prices have fluctuated but remain firm, which has seen base oil producers' margins squeezed with some curtailing production.
After a disappointing quarter, market participants are looking to 2013 more in hope than expectation as few expect a notable improvement.
“I do not think 2013 will be a happy year for base oils,” said a south European producer.
The producer did not expect demand to show any sustained uptrend as we enter 2013, despite some initial activity.
“People will start to buy to make up stocks, but then it will go back to a quiet market.”
The producer noted a rising trend for smaller volume flexi-tank trade, rather than cargo business, as people look to keep stocks low to limit exposure to market volatility.
“My feeling is that it will start to move again at the end of January-beginning of February, but it will be quiet in the first half of January,” said a southwest European producer.
“Demand is much lower than it was a year ago, so I am not very positive,” it added.
Buyers are also not expecting any dramatic market changes in the first quarter.
“November, December, January, February and March are normally pretty flat,” said a northwest European buyer.
“I only hope that the situation can be better but I do not know. We all hope that the situation will improve,” said a European trader, adding it was hard to find reasons to be optimistic.
Nonetheless, some market participants were more positive, believing that the current malaise would not spread further into 2013.
“People are destocking for taxation reasons. I am sure that we will see an increase in interest in January and February. For these two months people will buy,” said an eastern European producer, adding that as demand increases, prices will go up.
The European Group III base oil market also suffered from imbalanced supply and demand during quarter four and the 2013 outlook for this product is also unclear.
During the fourth quarter, prices declined by more than €160/tonne for certain grades and there were reports of producers aggressively undercutting to boost their European market share.
($1 = €0.76)
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