Outage at Taiwan’s Group II facility causes uncertainty
Asian base oil prices are assessed unchanged this week. The price direction is unclear following an unplanned shutdown at Taiwanese refiner Formosa Petrochemical’s Mailiao refinery complex, including its 520,000 tonne/year Group II base oil plant, over the weekend.
The refiner has declared force majeure on all petroleum products to be shipped from its Mailiao complex, but it did not give details on the duration of the export halt in a statement to customers on 1 August.
Market sources said Formosa has cancelled all its spot and term Group II base oils slated to load after the first week of August. It was originally planning to export around 45,000 tonnes this month.
A fire at a propylene pipeline last weekend led to the shutdown of the group’s 540,000 bbl/day refinery at Mailiao for safety reasons. It is uncertain when operations at the refinery will resume, given that the Formosa group is under immense pressure to improve its safety reviews following a series of fires at its Mailiao petrochemical complex since last year. The government has asked Formosa to thoroughly review safety standards and conduct a full-scale upgrading of its equipment if needed.
Market participants expect the Group II supply in Asia to tighten significantly if Formosa’s plant is shut for an extended period of time as the refiner supplies 40,000-50,000 tonnes to its term customers each month. China is its largest market, with its monthly exports totalling around 20,000-30,000 tonnes. Industry players are also eyeing a possible rebound in end-user demand next month as September typically marks the start of the peak production period for downstream plants in most of Asia.
However, the current weak demand in the key Chinese market will likely mitigate the impact of the supply disruption in the next one month, they added.
The lubricant sector in China has been faring badly in the past few months. Buying interest is also weak as Chinese domestic prices are far below import parity levels. The supply of Group II low-viscosity grades from domestic refiners remains healthy as well.
The restart of a major US Group II facility in the second half of July has weakened demand from a few oil majors in Asia.
There is also no immediate impact on prices for Group II spot supply in August as the South Korean refiners have already completed their negotiations or made offers prior to the plant shutdown in Taiwan.
Spot demand from India remains healthy for both Group I and II base oils as end-users and traders are replenishing their inventories, which have fallen to below comfortable levels as a result of weak imports in the past few months. Some are also preparing to build stocks in anticipation of a pick-up in downstream demand in the later half of September when the monsoon season ends and ahead of the Diwali festival in October when consumption of white oils strengthen.
A substantial quantity of base oils is expected to arrive in India between the end of July and August as a result of recent purchases.
Chinese spot requirements for August remain low because of the continued weak performance of the lubricant sector although refinery inventories have gone down as a result of maintenance shutdowns and as refiners’ downstream affiliates build up their stocks ahead of the autumn lubricant production season.
The supply of Group III base oils remains tight on the back of strong global demand.
Northeast Asia
Group II demand from Taiwan may improve in August following Formosa’s plant outage, but buying interest in China remains weak.
The Taiwanese refiner is expected to have sufficient inventory to supply to its domestic customers until late September. However, some of its domestic blenders are considering increasing their Group II imports amid fears that the refiner may not be able to restart its plant in the next one to two months.
Demand in China remains subdued. A few major buyers who have been affected by the supply disruption said they have no immediate plans to cover the shortfalls this month. This is because of the ample availability of competitively priced low viscosity base oils in the domestic market as well as weak downstream demand. However, they are likely to seek additional supply from South Korea in September if the Taiwanese refiner is still unable to resume exports next month and if downstream production strengthens.
In the Chinese domestic market, demand for imported Group II base oils has picked up. The smaller end-users who have been buying minimal quantities because of high offers are now trying to secure some quantities following news of Formosa’s plant shutdown. However, offers from traders and distributors are limited because of their low inventory levels.
A Group II supplier in South Korea offered up to 7,000 tonnes of spot base oils for August loading at prices that are around $30/tonne below July levels. It sought $1,370/tonne FOB Korea for 150N, $1,420/tonne FOB for 220N and $1,470/tonne FOB for 600N. A portion of the business has been fixed at the offer levels for 220N and 600N.
Another South Korean refiner is seeking to roll over its July prices for Group II and III supply, but buyers are asking for a price reduction. Negotiations are still ongoing. Its prices for July were settled at $1,380-1,400/tonne FOB Korea for 150N, $1,480-1,500/tonne FOB for 500N and at around $1,500/tonne FOB for Group III supply.
A 4cst Group III spot cargo totalling 2,000 tonnes from southeast Asia was booked by a major buyer at around $1,500/tonne CFR China for August arrival.
Spot discussions for August shipments to Taiwan have yet to start. A selling indication for 150N was heard at around $1,380/tonne FOB Korea, a $20/tonne reduction from the July price.
A Chinese refiner exported around 1,000 tonnes of 150N for first-half August loading at around $1,470/tonne CFR NE Asia. Its next shipment is likely to be in late August.
Spot discussions for Group I base oil cargoes into northeast Asia remain limited as a result of weak Chinese demand.
Some brightstock demand from China has surfaced, but a wide buy-sell gap is hampering discussions. An offer at around $1,720/tonne CFR China for 1,000 tonnes of tax-exempt southeast Asian brightstock for loading in August was deemed high by buyers. A buying enquiry was heard at $1,680/tonne CFR China for a similar zero-tariff cargo.
A Russian supplier sold via a tender 10,500 tonnes for August delivery at $1,050-1,080/tonne DAF for the lower viscosity grades, and at $1,130-1,150/tonne DAF for the heavier base oils.
In Taiwan, bids for bulk SN150 and SN500 shipments for loading in August were at around $1,300/tonne CFR Taiwan and $1,400/tonne CFR, respectively. Selling ideas were about $50/tonne higher for both grades.
On the FOB NE Asia front, a Chinese state refiner is in talks to export 5,000-6,000 tonnes of Group I base oils to southeast Asia this month. It is targeting around $1,300-1,320/tonne FOB China for the SN150 portion, similar to its July transacted price, but buying ideas were at below $1,300/tonne FOB.
Another refiner outside of China sold 2,000 tonnes of SN250 at around $1,320-1340/tonne FOB NE Asia for August arrival.
Some brightstock and SN150 of around 1,000 tonnes each were heard available at $1,680-1,700/tonne FOB NE Asia and $1,300-1,320/tonne FOB.
Chinese domestic prices are mixed. The prices of imported Group II base oils rose as traders and distributors raised their offers following the unplanned plant shutdown in Taiwan. Some end-users who have been affected by Formosa’s export halt are now trying to get alternative supply, but offers are limited as sellers have low inventory levels.
However, the prices of lower-viscosity Group II base oils from domestic refineries dropped after two producers lowered their offers amid ample supply.
The prices of 500N in eastern China rose by yuan (CNY) 500/tonne to CNY13,800-14,000/tonne ex-tank. The prices of 150N are at CNY11,400-12,700/tonne ex-tank, down by CNY100/tonne at the low end of the range, but higher by CNY200/tonne at the high end of the range.
Prices of Group I base oils in eastern China are stable this week.
Chinese refiners’ inventories are improving slowly amid increased exports, lower imports and maintenance shutdowns. A state refiner will reduce its supply to domestic customers to around 10,000 tonnes in August from around 20,000-25,000 tonnes last month.
Southeast Asia
Prices in southeast Asia are largely stable. Some end-users are starting to replenish their stocks for August, but weak lubricant sales have limited purchases to small parcels.
A 2,000 tonne SN250 cargo from northeast Asia was heard sold in the high $1,300s/tonne CFR SE Asia for August delivery. The destination of the cargo is likely to be Singapore.
Around 5,000-6,000 tonnes of Chinese Group I base oils are expected to be shipped to Singapore this month. The prices of the cargo have yet to be finalised.
The supply of Group I base oils from the Middle East remains healthy. Around 100 tonnes of SN500 and SN150 in flexi-bags were booked at $1,450/tonne CFR SE Asia for August arrival. Offers for similar parcels of SN500 were at around $1,400/tonne CFR SE Asia.
Some spot demand for Group II base oils has surfaced. Around 1,000 tonnes of 500N were offered by a northeast Asian trader at $1,510-1,520/tonne FOB NE Asia for August loading. Negotiations are ongoing.
The ex-tank Singapore market remains quiet. Most buyers are able to obtain sufficient quantities from a major term supplier and this has dampened their demand for spot parcels.
A few sellers sought $1,420-1450/tonne ex-tank for SN150, with deals done at the range. An offer for a small parcel was also heard at below $1,400/tonne ex-tank.
A trader maintained its offer for SN500 and brightstock at $1,475/tonne ex-tank and $1,710/tonne ex-tank, respectively. SN250 was heard available in the low $1,400s/tonne ex-tank, but it could not be confirmed.
A bulk brightstock shipment from southeast Asia was offered at around $1,700/tonne FOB for August loading but buying interest was weak at that price level.
India
Trading activity in India remains fairly healthy as traders and consumers restock base oils for August. The buying momentum is expected to continue next month as demand for downstream applications such as lubricants, transformer oil and white oil typically starts to strengthen from September.
Domestic refiners have lowered their list prices for most grades of Group I and II base oils to reflect the weaker US dollar in relation to the local currency. Offers are now at Indian rupees (Rs) 69.20/litre for SN500 and Rs67.50-67.60/litre for SN150, down by Rs0.80-0.90/litre from the previous month.
However, brightstock prices remain stable at Rs89.60/litre. Domestic Group II base oil prices were also lowered by around Rs0.80-0.90/litre to RS69.95/litre for 150N and Rs71.76/litre for 500N.
The recent rebound in import activity is expected to boost India’s inventory levels. An estimated 60,000 tonnes of base oils were delivered between the end of July and early August, and more cargoes are expected to arrive in the next few weeks.
A South Korean refiner will move 16,700 tonnes of Group II base oils to India in August, more than double the previous month’s shipment. Prices were settled last week at $1,385/tonne CFR India for 60N, $1,430/tonne CFR for 150N, $1,470/tonne CFR for 220N and $1,520/tonne CFR for 600N – down by $20-25/tonne from July levels.
Another South Korean refiner cut its prices for most grades of spot Group II base oils for loading in August by $15-35/tonne. Offers were at $1,440/tonne CFR India for 150N, $1,510/tonne CFR for 250N and $1,530/tonne CFR for 500N. Some business was done at the offer levels, although there were buyers who deemed the prices to be on the high side. The refiner also sold on a spot basis 60N at a minimum of $1,360/tonne CFR India.
Small quantities of 6cst Group III base oils were offered at $1,600/tonne CFR India, but buying interest was weak at this price level.
Group I base oil spot prices are steady, with deals done at the published price range.
A 3,000 tonne SN150 cargo loading from Iran in the second half of August was booked at around $1,320/tonne CFR India.
Prices of Iranian SN500 are similar or slightly lower than those of SN150. A trader sold in total 3,000 tonnes for loading in early August at around $1,310/tonne CFR India. Another similar-sized shipment for first-half August delivery was booked at $1,320-1,325/tonne CFR India. An offer was heard at $1,300-1,310/tonne CFR India for another 2,000 tonnes of Iranian cargo for delivery this month, but it could not be confirmed.
An Indian trader is shipping around 5,000 tonnes of SN500 to Mumbai on around 2 August. It is expected to offer the cargo on an ex-tank basis.
Small parcels of Iranian SN500 in flexi-bags traded at around $1,300/tonne CFR India.
A small 1,000 tonne brightstock of European origin was traded at $1,695/tonne CFR India for August loading.
Crude and fuel prices
Crude futures were lower in the week to 2 August following weak economic data in the US and China. US light sweet crude for September delivery was at around $94.80/bbl in early trade on 2 August, down from above $99/bbl a week earlier.
Gas oil prices in Singapore rose despite weaker crude futures on news that Formosa has declared force majeure on its exports. Singapore 0.5% gas oil prices were at $132.40/bbl FOB on 1 August, up by $1.95/bbl from the previous week.
Production news
Taiwan’s Formosa Petrochemical shut its 520,000 tonne/year Group II plant during the weekend of 30-31 July. A restart date for the base oil plant has not been set.
Japan’s JX Nippon Oil & Energy has reduced the operating rates at its 170,000 tonne/year Kainan base oil plant by about 10% following an unplanned shutdown at a vacuum distillation unit (VDU) at the Mizushima A refinery. The VDU, which supplies feedstock to the Kainan base oil plant, was taken off line on 18 July after a fire.
The refiner plans to shut in October its Group I base oils plant at Negishi and one of its two units at Mizushima for about 45 days of maintenance. The Negishi facility can produce around 200,000 tonnes/year of base oils, while the Mizushima facility has a capacity of around 150,000 tonnes/year.
Sinopec’s Gaoqiao Petrochemical will shut its 250,000 tonne/year Group I base oil line in early August for around three months of maintenance. Its second 150,000 tonne/year Group I line will continue to operate.
Sinopec Jinan will expand the capacity of its 100,000 tonne/year Group I base oil plant to 200,000 tonnes/year at the end of the year. It will halt operations at the plant in early September for about three months in order to carry out the planned expansion.
PetroChina’s Fushun Petrochemical has started supplying material to the domestic market in the week to 2 August after attaining on-spec production. It restarted its 150,000 tonne/year Group I facility in early July, more than eight months after it halted production.
South Korean refiner SK Lubricants plans to take its 350,000 tonne/year Group III facility in Indonesia off line in October for maintenance.
Thailand’s Integrated Refinery and Petrochemical Complex (IRPC) will shut its 320,000 tonne/year Group I base oil plant in November for at least 45 days of maintenance.
Taiwan’s CPC Shell Lubricants is expected to stop the production of SN150 for about 10 days this month when it commences treated distillate aromatic extract production around mid-August. It also plans to shut its 400 tonne/day Group I plant in November for maintenance.
Shipping enquiries
3,000 tonnes Base oils, Rayong / Singapore, 17-21 August
1,700 tonnes Base oils, Yosu / Haiphong, Vietnam, 11-15 August
950 tonnes Base oils, Ulsan / Shenzhen, 2-8 August
500 tonnes Base oils, Onsan / Taichung, 3-7 August
3,000-5,000 tonnes Base oils, Singapore / Zhenjiang, early August
3,000 tonnes Base oils, Sri Racha/Singapore, any August
5,000 tonnes Lube oil, Mohammedia / Sudan, 1-7 August
1,000 tonnes Base oils, Sharjah / Tampa, next available
This week on ICIS news ( www.icis.com):
02-Aug-11 10:18 Crude falls on worries over US weak manufacturing data
02-Aug-11 06:25 Phased shutdown of Formosa Mailiao complex likely – Morgan Stanley
02-Aug-11 02:52 Taiwan’s Formosa declares FM on petroleum products from Mailiao
($1 = CNY6.43)
