Asia’s Group I base oil prices in March rise on production cuts

19 March 2013 04:26  [Source: ICIS news]

Singapore (ICIS)--Asia’s Group I  base oil prices firmed in March, supported by production cuts across several Group I base oil refineries in the region, market sources said on Tuesday.

Producers have reduced their refinery operating rates, because of previously high feedstock costs and low base oil price realisations during the last quarter of 2012 and early this year, the sources added.

There are no northeast Asian spot cargoes available for export, as refiners in Japan, Taiwan and China are servicing mainly their domestic markets as well as their term buyers, a Singapore-based trader said.

“Even then, these refiners are not running [their plants] at full capacity,” the trader added.

“Buyers have no choice, but to turn to southeast Asian refiners for spot cargoes,” a second trader in Singapore said. “But the availability [of spot cargoes from southeast Asia] is also tight.”

Refiners in Singapore, Thailand and Indonesia were heard to be running their plants at 65-85% capacity and a majority of their cargoes are termed out, a Singapore-based blender said.

“Spot availability is very tight,” the buyer added. “Even if these refiners have some spot availability, they are not offering it, as they expect prices to rise further in the coming weeks as Asia becomes increasing devoid of spot cargoes.”

The reluctance of southeast Asian refiners to release their spot cargoes on expectations of higher prices has led several buyers with immediate requirements with little choice, but to replenish stocks at very high prices. This runs contrary to the slow downstream lubricants sales and weak lubricant demand in southeast Asia and China.

According to several participants, the market is heading towards a Group I base oil “price bubble”, as actual demand is weak despite the perceived supply tightness and  inflated prices.

“We’re heading for a Group I base oil price bubble that may burst in April or May, once Group II [base oil] supply returns to normal [levels],” a blender from Singapore said.

Supply tightness is expected to ease, once northeast Asian refiners resume production after the completion of their plant turnarounds and Iranian Group I refiners return in end-March after their New Year celebrations, the blender added.

Group I SN150 base oil prices rose by $20-30/tonne to $890-920/tonne FOB Asia, while SN500 volumes were $10-40/tonne higher at $950-980/tonne FOB Asia in the week of 18 March. Brightstock cargoes were at $1,050-1,090/tonne FOB Asia, up by $20-40/tonne from a week ago.

By: Serena Seng

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