SINGAPORE (ICIS)--Supply of Group I base oils from Iran is likely to tighten in the weeks ahead as market participants there mark the annual Nowruz, or Iranian new year, holidays which start this week.
Although Nowruz officially starts on 20 March, Iranian market participants said they would likely start their holidays a few days before that, probably as early as 16 March, before returning to work in late-March.
Ahead of the holidays, spot prices of Group I SN500 base oils in Iran fell to their lowest in about two-and-a-half years in the week ended 14 March, dragged by lower priced deals done by Iranian refiners while demand in the region remained generally weak.
That week, prices of SN500 in Iran were at $555-575/tonne FOB (free on board) Iran, $15/tonne lower than the previous week and the lowest since June 2016, according to ICIS data.
Iranian producers said they had secured orders for about 4,000 tonnes of SN500 base oils from buyers in the United Arab Emirates (UAE), which is the main export destination for Iranian material.
Prices of import cargoes into the UAE were also reduced to $585-595/tonne CFR (cost & freight) UAE in line with the FOB numbers in the absence of any deals on CFR basis this week.
Some other Iranian producers were reluctant to issue new offers for Group I base oils ahead of the Nowruz holidays.
Market sources said that although they expected discussions for base oils cargoes to continue during the holiday period, it was unlikely any new deals would be transacted in that time.
“Actually our refinery will not be shut; it will still be producing (base oils),” said one source in Iran. “So I will still be taking calls, talking to all our regular customers but I don't think we can close any deals in that period.”
There have also been ongoing difficulties in securing vessels to move any base oils cargoes from Iran to the UAE amid sanctions imposed by the US on Iran since November 2018, the market sources added.
Middle East demand for base oils has also been generally weak over recent months amid ample supply although there have been some signs of improvement in recent weeks.
But at least one Iranian refiner indicated it was expecting better demand after the holidays.
“We hope to expand our base oils plant capacity in April or May after the Nowruz holidays because we feel the situation will improve soon,” said a source at the refiner.
Still, any potential price gains could still be hampered by ample supply of competitively priced deep-sea cargoes as well as existing supply of base oils in onshore tanks in the UAE.
“It seems clear that prices of products will increase but the market will take some time to absorb the price increase,” said a source in the UAE.
(Top image: Petrochemical facility in Iran)
Focus article by Izham Ahmad