INSIGHT
Group III base oils face downward price pressure
Gabriella Twining, Associate Editor Base Oils, Argus Media
Europe’s Group III base oil spot prices have eased following 34 months of mostly uninterrupted rises. Improving spot supply availability and weakening demand is spurring this downward price trend.
Argus Group III 4cst fca NW Europe spot price rose by €1,390/t from June 2020 to a record high of €2,060/t in early April 2023 here. Price increases were historically supported by reduced domestic production, limited spot availability as sellers prioritise fulfilling term contracts and strong demand from the automotive industry.
Tight spot supply was exacerbated in 2022 following the outbreak of the Russian-Ukraine conflict in February resulting in the exit of Russian Group III base oils from the market. Supplies from Russian refiner Tatneft’ 100,000 t/yr Group III production to Europe halted. Supply was further exacerbated as six Group III producing refineries globally underwent maintenances throughout YEAR. As such, 4cst spot prices jumped 37% in the 10-months from end February to €2,000/t by year-end.
European Group III spot prices rose to the highest level globally in December 2022 which incentivised overseas producers to target this market. The arbitrage window with the UAE, and Asia is open with prices from these locations ranging between $460-490/t discount to European volumes.
Argus Group III (a) fca NW Europe price assessments define fully-approved grades as those with the Volkswagen, VW 504/507 approval. Following the lapse of this approval for Nexbase earlier in the year, South Korean refiner SK Enmove is the sole supplier of Group III grades with the VW 504/507 approval in Europe. Fca NW Europe Group III (a) 4cst prices had averaged about a $80/t premium to supplies without the VW 540/507 approval. The premium for these supplies are now in excess of $110/t.
Prices for Group III grades without the VW 504/507 approval faced downward pressure as traders offered
increasing volumes from Asia Pacific with repeated offer levels at over €200/t discount to Group III prices across all grades.
Despite there being a sole fully approved supplier, there remains some surplus volumes. Additional trucks of fully-approved supplies were offered in addition to contracted allocations, market participants told Argus.
Highlighting the higher supply situation was the move by sellers to ask customers for projected demand in the second quarter this year. Customers were requested to submit projected demand for the following month, rather than being limited to allocated volumes.
Furthermore, spot volumes were also offered to market participants out of the 19,300 b/d Group II and Group III base oil production through Ilboc, a joint venture between SK Enmove and Spanish producer Repsol at Cartagena, Spain. The move is likely a bid to clear excess stocks ahead of a scheduled maintenance in the second quarter.
Persistently high prices have dampened demand for fully and even semi-approved Group III material. Some blenders are also tweaking their formulations and developing cheaper lines of finished lubricants with these volumes. Others have secured more competitively-priced Group II light grades to blend with PAOs as an alternative to non-approved Group III. The Group III 4cst currently carries a €920/t premium to Group II N100 on an fca ARA basis on 21 April. But this pricing trend could be reversed at the end of the second quarter as spot availability tightens as both SK Enmove and South Korean producer S-Oil have overlapping scheduled maintenances at their respective refineries in Cartagena and Onsan end-May. Limited spot supplies will support firming prices.
www.argusmedia.com
LUBE MAGAZINE NO.175 JUNE 2023
39
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