INSIGHT Base Oil Report
Europe Group I The European export base oils market had a firm start to the year and this is continuing as March begins, with higher prices being noted in the market.
Supply is tight, with very few refiners able to offer all three grades of SN150, SN500 and brightstock. Demand for European Export market volumes during the first two months of the year has been described as healthy, with no excess product noted. Some have suggested in the past that sellers are doing more contractual business and that this may mean that fewer volumes have been available on the spot export market. One market player said recently that it believed capacity closures in recent years have meant that there is no buffer in terms of supply to cater for spikes in demand or unexpected outages and that this could be a factor behind the tight conditions being seen in the market now.
Brightstock prices have been robust for an extended period because it is fairly scarce in terms of supply, potentially because it is a grade which can only be produced via Group I base oil production.
During the first half of 2017, the European market saw an unexpected supply overhang of brightstock, with values under pressure as a result. However, ultimately this excess material was exported to Asia, with European prices recovering as a result. There is no such situation this year though, with the arbitrage from Europe to net-Group I importer China said to be largely closed.
Group I base oils production capacity in China has been eclipsed by Group II production in recent years, with this first
occurring in 2016, where Group II production represented 49% of capacity, while Group I production represented 48%.
The European domestic market tends to be more balanced in terms of supply, with most players working on a contractual
basis.Prices have been relatively steady, although recently it has been suggested that some European refiners may be looking for increases amid expectations of scheduled refinery maintenance in Europe and Russia in the coming months.
Baltic Sea export prices are also firming as a result of expected bouts of maintenance on the horizon, although there are some outliers in the market who insist that there is ample supply currently available. However, the majority of sources note little on offer from Russian refiners and expect prices to firm in the coming weeks as a result.
Europe Group II/III In the Group III market, the price spread between unapproved and approved material is being pulled in two very different directions, with volumes of unapproved Russian material boosting supply and maintaining pressure on unapproved Group III prices. However, scheduled refinery maintenance at refineries in South Korea is expected in the coming months and this is lending support to firmer prices for approved Group III product.
A conflicting picture emerges in Europe’s Group II market: an instance of values lifting by nearly a three-figure rise into February was reported, in contrast elsewhere a decrease was implemented.
Given the dominance of US imports in the market, early 2018 increases in US posted prices are
being closely watched by European players for any sign of an impact.
Asia
Sarah Trinder, Senior Editor, Manager ICIS
Going forward into March, some market players said that spot prices for base oils are set to be buoyed by persistently short availability for certain grades, coupled with strong performance in the upstream market. However, some buyers displayed resistance towards price gains in March, citing increasingly squeezed margins from firm base oil prices seen since late November 2017. As such, these buyers maintained that they would hold on to a wait-and-see approach, especially for those who were resting on ample inventories.
US
All domestic US market prices are firm and all hold potential to move up amid the outbreak of posted increases that have dominated in January and February.
Group III market prices are stable following decreases in recent weeks. The downward price movements were counter to the uptick in Group III posted prices that took place in January and early February. The ongoing presence of newer entrants with imported base stocks moving at lower prices in the domestic market formed an impact on values.
Group II domestic market values and the Group II export spreads are slightly up amid firmer price ideas and the implementation of February posted values.
LINK
www.icis.com
LUBE MAGAZINE NO.144 APRIL 2018
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