10 April 2013 17:34 [Source: ICIS news]
LONDON (ICIS)--Base oil producers in the Baltic Sea market could be forced to lower their prices if demand for cargo exports does not pick up soon, traders said on Wednesday.
Few cargo export deals have been struck in recent weeks, and traders believe inventories in the Baltic region and beginning to fill up. As a result, producers will be under pressure to shift stock to make room for replacement volumes, and could be forced to lower prices to do this.
One key end market is Nigeria, which traditionally absorbs significant amounts of Baltic Sea product, but has shown low demand since a number of large cargoes arrived in February.
Some traders feel Nigerian appetites for base oils in beginning to increase again, and indeed one deal for 4,500 tonnes of Baltic material was said to have been done this week.
Nevertheless, other traders believe if Nigerian demand does not significantly increase in the next few weeks then Baltic Sea prices will have to fall.
“I think we could see lower prices in the coming weeks to stimulate deals,” one trader said.
It was also added that lower feedstock costs have alleviated pressure on producers’ profit margins, possibly increasing the chance of base oil prices following suit.
However, a producer supplying the Baltic Sea disagreed. The producer said offtake from domestic customers, flexitanks exports and cargo exports to contractual customers were preventing the market from lengthening. In addition, the producer continues to operate at a fairly low capacity, thus reducing replenishment rates.
Prices in the Baltic Sea are currently assessed at $980-1,000/tonne FOB for SN150, $1,000-1,020/tonne FOB for SN500 and $1,060-1,080/tonne FOB for SN900.
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