Weak rand could reduce volume of base oil imports to South Africa

12 June 2013 16:34  [Source: ICIS news]

LONDON (ICIS)--The loss in value suffered by the South African rand in recent weeks is likely to result in less base oil imports into the country, market sources said on Wednesday.

Since the beginning of May, the value of the rand in dollar terms has decreased by 11.2%. Meanwhile, domestic base oil prices have increased by between 2.5-6.5%, depending on the supplier or customer in question.

In any case, the increase in rand prices does not fully compensate for the reduced value of the rand, thereby increasing the costs for importers.

“Suppliers are buying up locally produced material; there’s a reluctance to import,” said one distributor.

However, one of South Africa’s two base oil producing refineries is currently undergoing a maintenance turnaround, and the market is already beginning to tighten.

Sources said that the double impact of reduced imports and reduced local supply could result in a seriously short market.

One mitigating factor is the fact the demand is not strong, with both the industrial lubricant and automotive lubricants sector feeling the effects of South Africa’s struggling economy.

A blender said it believed this slow demand is the reason that June prices had not increased by enough to fully compensate for the devalued rand.

“[Suppliers] are testing demand. If buying holds more or less steady through June, we could see even more price increases next month,” the blender said.

The 180,000 bbl/day Sapref refinery in Durban is expected to be back online by July, following a three-month turnaround, according to market sources. This could not be confirmed with the company, however.

($1 = R10.04)

By: Ross Yeo
+44 208 652 3214

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