Asia base oils seen steady-to-firm on snug supply, stable crude

Focus article by Jasmine Khoo

SINGAPORE (ICIS)–Base oils prices in Asia will likely be supported in the near-term by snug spot availability of some grades and a relative stability in upstream crude market, industry sources said.

In the week ended 13 February, Group II 500N prices edged up for the first time since June last year to average $620/tonne FOB (free on board) NE (northeast) Asia, according to ICIS data.

Restocking activities ahead of the Lunar New Year holidays in Asia provided support to regional base oils prices, market sources said.

The Lunar New Year, which fell on 19 February, was celebrated in most parts of northeast and southeast Asia.

“It is encouraging to see how base oils prices are recovering, since downstream lubricants prices will also be supported. Currently, downstream lubricants demand is largely stable,” a southeast Asia-based buyer said.

Current prices of Group II 500N are still down by about 40% from mid-2014, based on ICIS data.

Base oils prices may have bottomed out and could increase some more, but further gains may be capped as most market players are still wary of the volatile crude prices, according to industry sources at the recent World Base Oils conference held in London.

At midday, Brent crude was trading at around $59/bbl.

For Group II’s high viscosity 500/600N grades, snug supply will at least prevent prices from sliding down, market sources said.

“With supply of the heavy grade cargoes growing increasingly tight, with turnarounds at two … [Group II] refineries in March, we are also looking for firmer pricing as enquiries are coming in actively, ” said a Group II base oils refiner in northeast Asia.

Formosa Petrochemical Corp (FPCC) is scheduled to conduct a month-long turnaround at its 600,000 tonne/year Group II base oils facility in Taiwan in March.

SK Lubricants’ Group III base oils facility will likewise undergo turnaround for about the same duration next month.

Refineries, which are preparing for turnaround, have been holding back on spot base oils sales, they said.

Northeast Asia-based sellers must do a cautious management of inventory to tide them over the expected supply tightness in the next two months, said the Group II base oils refiner.

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