NE Asia take-up of US Group II base oils likely weak by yearend

Focus article by Jasmine Khoo

SINGAPORE (ICIS)–Northeast Asia will not be receptive to an influx of Group II base oils from the US towards the end of the year with regional prices continuing their downtrend, market sources said on Thursday.

Weak sentiment in the key China market has kept its import volumes of the material low, they said.

On 14 November, Group II base oils prices in Asia were assessed at an average of $815/tonne FOB NE Asia on 14 November, reflecting a decline of 19.5% from 6 June, according to ICIS data.

Market players in China are wary that they will incur heavy losses if they buy cargoes now given the downward trajectory of base oils prices.

As the year draws to a close, most market participants from India, southeast Asia and the Middle East are concerned over the traditional influx of base oils from the US – as its refiners attempt to lower inventory, which is subject to domestic taxation, market players said.

This concern is heightened given US’ base oils capacity has increased this year, particularly for Group II grades.

But market players in northeast Asia, however, are not in the least worried.

“Chinese buyers right now are already purchasing very cautiously on the back of persistently weak market conditions, a China-based trader said in Mandarin.

“To be honest, I don’t see any chance of the market improving significantly within the next quarter. If Chinese buyers are already being so careful with purchasing Asian-origin cargoes, I don’t think they would be very receptive towards offers for US material, even if prices [of US cargoes] were comparatively more attractive,” the trader said.

Trading of deep-sea cargoes in the northeast Asian market is being weighed down by the continuous decline in prices of the material, according to industry players in China.

“Currently, prices are still going down, with softer offers and bids seen week on week from the northeast Asian refiners and buyers,” a separate trader said in Mandarin.

“With the present price downtrend, it is unlikely that buyers would take such a big risk to commit to fixtures for deep-sea cargoes, since further drops in prices are very possible during the long voyage time,” the trader said.

Lower offers for November-lifting cargoes from northeast Asian refiners strengthen the view that US-origin material may not entice buyers, market sources said.

“Even if we were to import, we would take in volumes like 1,000 tonnes, or at most, 2,000 tonnes, a buyer in the region said.

“Deep-sea sellers would not be keen to deal with such small volumes, and the large volumes that they usually ship will unlikely be consumed by Asian buyers for now,” the buyer added.

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