Persistently high feedstock costs continue to weigh on base oil production plans in Asia-Pacific.
While Group I and II fob base oil export prices have largely rebounded on firm offers, they continue to trend at discounts to Asian gasoil values. Asia Group I SN150 fob export prices are at a $206/t discount to four-week Asia gasoil values, significantly lower than the five-year average premium of $42/t. Asia Group II N150 fob export prices are at a $66/t discount against four-week Asia gasoil values, below the five-year average premium of $88/t.
Weaker base oil values relative to gasoil prices encourage producers to divert feedstock towards the middle distillates pool. Some producers are contemplating production cuts for base oils, while supplies are expected to fall with plant maintenance and shutdowns.
South Korea's Hyundai and Shell Base Oil (HSB) has an unplanned disruption to its base oil production during 25-31 August because of a fire at refiner Hyundai Oilbank where HSB gets its feedstock. HSB was previously operating at a reduced rate in August because of lower feedstock supplies during the refinery's maintenance.
Japan's Eneos has scheduled a three-month maintenance at its Mizushima A 225,000 t/yr Group I plant from late August. It will shut its 360,000 t/yr Group I plant in Wakayama permanently by October. Taiwan's Formosa will shut it's 600,000 t/yr Group II plant in Mailiao in October for a two-month maintenance.
An Indian refiner will have planned maintenance at its 180,000 t/yr base oil unit in September.
The impact from these production cuts has so far been countered by muted demand for finished lubricants. Market participants continue to remain cautious with an uncertain price outlook. A structural rise in production capacity has also limited the impact from short-term supply disruptions.
China's Hongrun's 500,000 t/yr Group III base oil unit started up in mid-August, with the delivery of its new supplies likely to start in September.
A new Indian 235,000 t/yr Group II and III production unit is expected to start up during September-October.
