India’s Group I base oil firming up on limited Mideast availability

02 July 2014 07:43 Source:ICIS News

Focus story by Jasmine Khoo and Veena Pathare

Base oil main application is lubricants for vehiclesSINGAPORE (ICIS)--India’s import prices for Group I base oil spot prices rose on limited availability and firmer export prices from the Middle East with market participants expecting the uptrend to last for a few weeks, industry sources said on Wednesday.

Group I SN500 prices in India were assessed at $1,040-1,070/tonne CFR (cost & freight) India in the week ended 27 June, up by $30-40/tonne from the previous week.

Prices rose tracking firmer deals and offers for both Middle Eastern and Russian product, amid largely limited availability from the Middle East.

As a result, market participants voiced expectations of continued firmness in SN500 prices because of the regional snug spot availability.

In the second quarter of 2014, a Middle Eastern refiner’s Group I unit faced technical difficulties which has limited spot output throughout the quarter. Meanwhile, a regional producer also undertook a scheduled turnaround at its unit from May to June, further limiting spot supply.

This price hike narrowed the gap between spot export prices from the Middle East and Asia, even though some market participants maintained that the higher prices were still not enough to open the arbitrage window to sell Asian-origin material into the Indian market.

Spot prices for SN500 on a FOB (free on board) Asia basis stood at $1,010-1,020/tonne during the week ended 27 June, while the average ocean freight cost for shipping from northeast and southeast Asia to India was said to be around $65/tonne.

As a result, Asian-origin lots were still deemed too highly-priced for the Indian market.

Meanwhile, lower-priced Middle Eastern-origin material were still offered to India-based importers.

Other than Middle Eastern Group I material, cargoes of Russian and South American-origin can also be accepted into the Indian market because of their competitive pricing.  Russian and South American cargoes, because of lower viscosity index (VI) compared with Asian-origin material, are able to enter the Indian market more easily than Asian cargoes.

“Buying ideas around $1,050/tonne CFR India…we cannot sell Asia cargoes at this price into India. It [margins] doesn’t work out.” An Asia-based trader, who also looks at the Indian market, said on Tuesday.

A Middle Eastern major refiner floated two tenders of 20,000 tonnes of SN500 each during the course of the last three months in late April and early June.

The refiner confirmed that both tenders were awarded, and prices were heard at $995/tonne FOB Middle East and $1,115/tonne FOB Middle East respectively.

The $20/tonne increase between the two tenders lent upward support to the Indian market import prices, especially since a separate major Middle Eastern refiner was facing limited spot output because of technical issues at its base oils units.

Prolonged cautious buying activity in small volumes amidst uncertainty over market price trends were also prompting some buyers to replenish dwindling inventories, said market sources.

“Demand from India is definitely there for SN500, but spot prices for Asian material would still be the main reason hampering trade from Asia to India,” added a separate regional trader.

Indian producers also hiked their list prices in the domestic market, following limited availability of imports.

SN500 prices in the domestic markets rose by Indian rupees (Rs) 0.40/liter, while SN150 prices were hiked by Rs1.20/liter for July shipments effective from 1 July, local producer sources said.

Brightstock prices in the local markets were also hiked by Rs2.00/liter for July shipments, according to market sources.

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

By Veena Pathare