Asia Group II base oils offers up on crude gains, snug supply

Focus article by Jasmine Khoo

SINGAPORE (ICIS)–Asia’s Group II heavy grade base oils offers were on the rise following crude price stability and increasingly snug spot availability, market sources said on Friday.

Following relentless plunge in upstream crude futures throughout the last quarter of 2014, rebound in crude values is lending confidence to regional Group II sellers and has boosted selling ideas.

According to ICIS data, Group II 500N spot prices stood at an average of $1,037.50/tonne FOB (free on board) NE (northeast) Asia on 6 June 2014, before sliding relentlessly to $615/tonne FOB NE Asia on 6 February in tandem with hefty crude price falls.

However, signs of rebound first emerged during the week ended 13 February, when spot prices edged upwards for the first time in months to reach an average of $620/tonne FOB NE Asia on the back of firmer fixtures, ICIS data showed.

Buyers based in key China market were active in making enquiries and were restocking before and after the Lunar New Year holiday – 18 to 22 February – especially after a prolonged period of limited procurement activity in the previous quarter.

Spot supply of heavy grade Group II 500/600N cargoes has already tightened ahead of the upcoming turnarounds at two Group II refineries in the northeast Asian region in March,

One of the two refineries going into scheduled maintenance sells only 500N without 150N.

On the flipside, low viscosity 150N spot material was comparatively more amply-available due to higher output of light grade material among the regional Group II refineries unaffected by maintenance shutdown.

With these existing conditions, spot offers for March-loading Group II 500/600N cargoes were hiked month-on-month, resulting in firmer discussions in the region.

Most buyers were aligned in the perspective of spot prices having bottomed out and the subsequent stable-to-firm market price situation.

“Right now, offers in the Asian market do appear to be standing at $20-30/tonne firmer than what they were prior to the Lunar New Year holidays,” a Southeast Asia-based trader said late on Thursday.

“However, whether buyers would accept this price increase remains to be seen,” it added.

A northeast Asian buyer commented on the current price situation in Mandarin: “The market does appear to be on an uptrend for now, with crude values going up.

“We as buyers understand that, and honestly, $10-20/tonne increase in import prices are negotiable. But to raise the March offers suddenly after the Lunar New Year break by $40/tonne? That appears to be a little too much for such a short period. We need time to adapt to changing market directions.”

Earlier on Thursday, two major refineries supplying Group II high viscosity 500/600N material announced increment for their list prices by $20-30/tonne, with the firmer pricing effective in the first half of March.

Not only were higher offers made in the northeast and southeast regions, India was also poised to experience firmer discussions.

“We will offer to India very soon. Our prices will be very high,” said a northeast Asia-based refiner, which had not offered March-lifting cargoes yet.

There was no further elaboration on the exact price ideas by the refiner.

Based on the current market sentiment among market players, the outlook for March Group II base oils spot prices is stable-to-firm, with the main concern being the extent of the increase.

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