Group I base oil SN500 price gap between Asia, Middle East narrows

10 June 2014 07:36 Source:ICIS News

By Jasmine Khoo and Veena Pathare

Lubricants are the major downstream application of base oilsSINGAPORE (ICIS)--The price gap between Group I base oil SN500 spot prices in Asia and the Middle East has narrowed to a one year low following decline in prices in Asia and an uptrend in the Middle East and India prices, market sources said on Tuesday.

Group I SN500 prices in Asia were assessed at $1,020-1,030/tonne FOB (freight on board) Asia in the week ended 6 June, whereas SN500 prices in India were assessed at $1,000-1,040/tonne CFR (cost & freight) India in the week ended 6 June, ICIS data showed.

Last time the gap had narrowed to this level was at the end of June 2013 (please see chart below).

However, despite the narrowing of price gap, the arbitrage for these cargoes to India from Asia remains closed on account of the availability of Middle Eastern cargoes, market sources said.

In Asia prices declined as a result of lacklustre demand for SN500 cargoes in the region.

“Demand for SN500 is very slow now, making it difficult to sell SN500 unless the cargo is bundled with brightstock,” said a regional refiner, drawing reference to the healthier demand that Group I brightstock cargoes enjoy in key markets such as China.

Supply of bright stock has remained tight for much of 2014, following regional turnarounds and limited production both in Europe and Asia. As a result, buyers have been willing to pay higher prices for bright stock cargoes, while sufficient availability of SN500 largely capped price increase.

SN500 is primarily used in the manufacture of auto lubricants, while bright stock caters to more specific usages such as marine and specialty lubricants.

A separate Asia-based refiner said: “$1,040/tonne FOB Asia for SN500 is too high…some traders were heard bidding below $1,000/tonne FOB Asia, which gives a clear indication of the bearish market sentiment. Neither buyers nor sellers are very confident of the current market.”

However, both India and Middle East Group I SN500 prices have been firming in the recent weeks, following the higher-priced deal for a recently concluded 20,000 tonne tender from a major Middle Eastern producer in May.

A key Middle Eastern producer was said to have floated a tender for a 20,000-tonne SN500 cargo in late-April or May.

While the deal price for the tender was not officially disclosed in the market, market players deem the price to be in the range of $995-1,010/tonne FOB Middle East, equivalent to $1,025-1,040/tonne CFR Middle East, $45-60/tonne higher than the producer’s previous tender early this year.

This was supported by the rise in prices in the ex-tank UAE market in the previous week.

SN500 offers in the local market netted a sharp rise in the week ended 5 June, rising by $20-30/tonne from a previous $1,030-1,040/tonne ex-tank to $1,050-1,060/tonne ex-tank.

However, blenders opted to wait and see the trend in offer prices and largely resisted the price hike, in view of limited acceptance in downstream markets.

“Finished lubricant demand, although stable is not strong enough for us to be able to pass on such an increase today. With Ramadan coming in [in late June], demand will slow down further. So it will be difficult for us to buy at a higher price”, a UAE-based blender said.

In India offers were heard at $1,040-1,045/tonne CFR India, up by $25/tonne from the previous deal price for Middle Eastern as well as Russian cargoes. 

While deals are yet to be largely concluded, prices are likely to firm in the following weeks owing to the absence of offers softer than $1,040/tonne CFR India in the market, said some market participants.

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

By Veena Pathare and Jasmine Khoo