FocusMiddle East Group I base oils to strengthen on firmer demand

12 September 2013 06:55  [Source: ICIS news]

By Veena Pathare

Base oils are blended to produce lubricants for the automotive sector.SINGAPORE (ICIS)--Spot Group I base oil prices in the Middle East are likely to firm up from mid-September, with offers rising on the back of improving demand, market sources said on Thursday.

On 5 September, spot group I SN500 grade base oil prices were assessed at $985-1,020/tonne (€739-765/tonne) CFR (cost and freight) UAE, down by $25/tonne at the low end of the previous week's price range. Low viscosity SN150 prices, on the other hand, stood at $955-1,010/tonne CFR UAE, down by $15/tonne over the same period amid weak downstream demand, according to ICIS data.

A seasonal pick-up in demand for downstream lubricants is expected to support prices in the weeks ahead, market sources said.

Lubricants are a blend of two or more types of base oils, including heavy and light Group II and Group III grades.

The Middle East is a major market for Group I base oils, accounting for 70-75% of the region’s total base oils requirement, industry sources said.

Iran, Russia and Europe supplies to the Middle East markets. But with prices rising in the European, Baltic and Black sea markets, the arbitrage from regions other than Iran is said to be closed, market sources said.

“Lubricant demand picks up ahead of the autumn season and blenders start building up inventories, so we should see improved demand in the following weeks,” a regional importer said.

Better demand should give base oils producers some reprieve in the form of higher prices, as they have been struggling with high production cost amid recent steep spikes in energy prices. Previous attempts to hike base oil prices were met with stiff resistance from buyers, in view of weak demand, market sources said.

In recent weeks, however, buying enquiries for September shipments have notably increased, according to some regional traders.

Ex-tank prices for SN150 and SN500 presently at $990-1,020/tonne in Sharjah, UAE are also expected to increase in the weeks ahead, in line with the projected uptrend in CFR prices.  Imported cargoes are sold in the UAE domestic market on an ex-tank basis.

“Ex-tank prices are not likely to go down further, and most of us are not planning to cut our offers, which is a good sign,” a UAE-based importer said.

Demand for Group II and Group III base oils is also expected to pick up ahead of winter as these are blended with heavier base oil to achieve a lower pour point, or a state in which lubricants will remain in liquid form and will not solidify.

While small, demand for lighter base oils grades looks set to strengthen significantly as these grades are purchased in bigger volumes ahead of the winter season.

Over the past week, demand for Group III base oil has strengthened, with increased buying interest and enquiries for Asian cargoes. Deals were heard concluded for northeast and southeast Asian cargoes to the UAE markets at $1,030-1,060/tonne FOB (free on board) NE (northeast) Asia, equivalent to $1,100-1,140/tonne CFR UAE for September delivery, market sources said.

For Group II base oils, on the other hand, demand continues to remain largely subdued, with very limited enquiries received, market sources said.

($1 = €0.75)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Veena Pathare
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