China Mega Storm and General rate increase Changing the Game

recycle-15Sep
September 15, 2021
3 minutes

In addition to all the unpredictable events that have plagued businesses and traders, natural disasters have also hit the market in recent weeks.

Rather than affecting the oil market and prices, these events have turned shipping operational disarray into a disaster.

As we mentioned in last week’s report, Hurricane Ida made some markets volatile while it did not have a significant impact on base oil and lubricant markets. However, the closure of ports and terminals is likely to affect shipments from various regions, including Asia and the Middle East, exacerbating ongoing logistical issues.

Over the past week, news of a resumption of GRI on September 26 has been circulating after severe storms in eastern China disrupting major Chinese ports.

It seems that these unhealthy conditions in shipping will continue until mid-2022. The price of products is likely to increase due to the rising shipping costs.

Reports suggest that India may cut oil and fuel products by about Rs 900. Demand is relatively high in India, as it is the season of festivals and celebrations. The Monson has nearly ended, and producers of base oils and end products have prepared their inventories for more demand.

Production rates in China and Southeast Asia have also fallen over the past few months due to plant closures caused by reduced employees. The closure has also affected the demand for industrial lubricants. Ports have been closed due to rising infections in the country, according to reports and covid restrictions. This has caused congestion at the port and a lack of vessel space. Limitations on public transportation have also reduced demand for aviation, automobile, and motorcycle oils.

As base oil and lubricant consumption began to decline, the supply of base oils increased as production resumed at several Southeast Asian stock plants, Japan, South Korea, India, and Taiwan. More supply and less demand put downward pressure on the price.

China, which was the game changer this week, is reportedly planning to use its strategic stocks to control oil prices; therefore, oil prices do not appear to surge more than $75.

Due to the Corona situation, which seems to be controlled in East Asia and India, and the end of Manson in these countries, we may expect an increase in demand.

The price of recycled base oil has remained in the range of $700 FOB Bandar Abbas for almost a year, which is the longest time to maintain the price of this product stable.

By analyzing the market and events, several factors designate a price increase, including:

  • Increased shipping costs
  • Preliminary agreements between Iran and the 5 + 1 on nuclear commitments that will reduce the USD against the Rial.
  • Oil price stability in the current range
  • Rising demand after Monson in India
  • Celebrations and events in India which increase oil consumption
  • Corona eased down in East Asian countries

In the paraffin and slack wax market, conditions are as same as in previous weeks, and it seems that the supply of these products is still interrupted.

As mentioned above, the fundamentals of supply and demand have caused fluctuations in the current pricing of base oils and oil products, while it seems the numbers will remain the same during the week.

This article was prepared by Tina Taghavi, the account manager of Infinity Galaxy (www.infinitygalaxy.org).

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