Europe Group III base oils spot prices hit 5-year highs, shortages persist

LONDON (ICIS)–European domestic Group III base oils spot prices hit five-year highs, with further upward pressure expected this quarter.

• Supply shortages worsen
• Lower operating rates to continue
• Q2 maintenance at Neste, Porvoo

Spot prices firmed €20/tonne for 4cSt, with both approved and non-approved supply tightening in early Q1. 4cSt spot prices were valued at €740-910/tonne FCA ARA.

Prices at this level have not been reached since January 2016.

Approved 6cSt supply remains short, with a premium over 4cSt pricing.

Shortages of 6cSt drove some players to blend 8cSt and 4cSt as an alternative.

6cSt and 8cSt spot prices were valued at €780-940/tonne FCA ARA. Prices at this high level date to November 2015.

All grades remain under pressure, with suppliers struggling to meet demand.

“OEMs are driving healthy demand. People are still driving instead of other activities. Explains how extraordinary December was compared to an average December. Also January too, it’s very healthy. Almost like the average month of the peak season!” said a producer.

“We have had significant number of enquiries this week from new companies and some existing ones looking to increase purchases”, said a trader.

Tightness is expected to continue, with many suppliers either restricted or sold out for January.

“The market is short, Neste not offering anything, neither are S-Oil. A lot of companies seem to be in same position as us, bit starved of product”, the source added.

“I noticed there’s a shortage for most grades. It’s a challenge to get product”, said a distributor.

6cSt became extremely short last quarter, with a price premium of €60/tonne on 4cSt offered by some producers.

Supply shortages are expected to continue over the first half of the year, largely driven by low operating rates as a result of low demand for jet fuel.

With travel still restricted due to the coronavirus pandemic, weak jet fuel demand is likely to remain a key driver for Group III supply limitations.

Additionally, approved Group III producer Neste will conduct its postponed planned maintenance in Q2 at Porvoo, Finland.

Sources noted restricted supply from the producer for several months. The maintenance period is likely to add to existing market tightness.

Focus article by Eashani Chavda

Additional reporting by Samantha Wright

(Picture source: Isopix/Shutterstock)