FocusChina base oils market at risk of overheating

16 June 2009 06:16  [Source: ICIS news]

By Anu Agarwal

SINGAPORE (ICIS news)-China’s strong appetite for base oils imports in recent months amid surging prices fuels concerns that the market may overheat, market sources said on Tuesday.

“China seems to have a lot of inventory of base oils and it’s getting a bit risky to sell there now. No one knows how long this robust demand will last,” said a base oils trader and seller to China.

Some traders said they were wary about deals, citing the collapse of demand in October last year when many Chinese buyers backed out of orders.

“There are still a lot of enquiries from China. However, buyers are asking for stretch payment terms – they want longer credit and this could point to overbuying,’’ said another regional base oil seller.

“I am being very cautious in my deals,” he added.

China imported record volumes of base oils in April, which meant that its storage tanks were quite full, leaving new shipments at risk of not finding ample storage space, a trader said.

April’s volume at 265,000 tonnes was almost equal the country’s total base oils imports in the first three months of 2008.

Despite record car sales seen in April and May, it was still puzzling to see such high demand from China during recessionary times, said a global lube blender.

“Although car sales are very strong, [the] first fill market of lubes is much smaller when compared to the refill market,” he added.

First fill is the original lubricant that is filled in a new car.

Car sales in the mainland rose to an all-time high of 831,000 in April, up from 829,100 in May, according to the China Association of Automobile Manufacturers (CAAM).

But not everyone in the market was sceptical of the buying frenzy in China.

“Crude prices are rising and it’s normal for base oils buyers to pre-buy in such a situation,” said a northeast Asian base oils seller.

Base oils are used to make automotive and industrial lubricants.

Key base oils producers include ExxonMobil, Shell, SK Energy, GS Caltex and S-Oil.

To discuss issues facing the chemical industry go to ICIS connect

By: Anu Agarwal
+65 6780 4359

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly