OUTLOOK ’12: Asian base oils may stay soft amid fewer turnarounds

03 January 2012 03:58  [Source: ICIS news]

By Yeow Pei Lin

Base oils are made into lubricants for use in cars.SINGAPORE (ICIS)--The surge in Asian base oil prices that occurred in the first half of 2011 is unlikely to be repeated in the same period this year amid a lighter refinery turnaround schedule and an uncertain global economic climate, market participants said.

Supply conditions in Asia are expected to be healthier this year as there will be fewer turnarounds at regional facilities, participants said. Around 10 base oil facilities in southeast Asia, South Korea, Taiwan and Japan – all key exporters to China – will be shut for maintenance in 2012, versus about 15 shutdowns in these countries last year (please see table below).

The supply of Group II base oils, in particular, is expected to be more ample as two of the three major suppliers in northeast Asia have no plans to take their plants off line for maintenance in 2012. South Korea’s GS Caltex and S-Oil, which have a combined Group II capacity of more than 2m tonnes/year, have already completed their turnaround plans between May and June last year.

Export prices of Group II 150N rose by more than 30% from the start of 2011 to $1,395/tonne (€1,074/tonne) FOB (free on board) northeast (NE) Asia in May.

A heavy maintenance shutdown schedule in the first half of 2011 further tightened regional supply following a near-five month outage at Taiwanese Formosa Petrochemical Corp’s (FPCC) Group II facility in the second half of 2010.

Additional Group II capacity coming on stream in China is also expected to weigh on sentiment. State refiner Sinopec will be upgrading three Group I base oil plants to produce higher quality base oils this year. The first expansion at Yanshan Petrochemical, which will raise the capacity from 260,000 tonnes/year of Group I base oils to 300,000 tonnes/year of Group I and II base oils, is due for completion in the middle of 2012.

From the demand perspective, things are looking less rosy for suppliers as well.

The downstream lubricant sector, which has slowed down since June, may remain soft in the first half of 2012 amid fears that Europe’s debt woes will likely sap growth in the key regional economies of India and China, according to market participants.

Most market players expect base oil demand in China to improve after the 22-28 Lunar New Year holiday as buyers will likely build stock to prepare for the March-May oil change season. However, the recovery may be slow because of the weak economic conditions, they said.

Finished lubricant makers may have to push their production targets to the later half of 2012, an Asian trader said.

“It’s still going to be a buyers’ market, at least in the first half of the year.

End-users will likely stay cautious and avoid keeping too much stock because of the uncertainty in the global economy,” he said.

Taiwanese suppliers are expected to grow their market share in China next year despite the gloomy outlook, a source in China said. Such cargoes will become more competitive as the current import duty of 5% will be removed under the Economic Cooperation Framework Agreement (ECFA).

The supply of Group III base oils in Asia is expected to increase this year as South Korea’s SK Lubricants is expected to bring on line a 500,000 tonne/year Group III plant in Ulsan in the middle of 2012 under a joint venture with Japanese refiner JX Nippon Oil & Energy.

Shell is also likely to start shipping to Asia base oils from its Qatar-based gas-to-liquids (GTL) facility in the first half of 2012.

The oil major, which is a key buyer of premium base oils in Asia, is expected to reformulate its lubricants globally using its own GTL supply, a market source said.

“Shell will probably cut down on its Group II and III base oil purchases gradually," a trader said.

When fully operational next year, Pearl GTL, a joint venture with Qatar Petroleum, will be able to produce more than 1m tonnes of Group III base oils.

Maintenance shutdown schedule in 2012

Company

Location

Capacity (1,000 tonnes/year)

Timing

ExxonMobil

Singapore

1,200 Group II

Feb for around two-three weeks

Petronas

Malacca, Malaysia

330 GroupII/III

Feb for about four weeks

SK Lubricants

Ulsan, South Korea

Around 1,030 Group II/III

Mar

Maoming Petrochemical

Maoming, Guandong province, China

470 Group I

Feb for around 40 days

Jinan Refinery

Jinan, Shandong province, China

100 Group I

Feb for around four months; plant will be revamped by end-2012 to boost production to 300,000 tonnes/year, including new Group II capacity

SK Lubricants/Pertamina

Dumai, Indonesia

Around 350 Group III

Apr

JX Nippon Oil & Energy

Kainan, Japan

170 Group I

May for around 10 days

Idemitsu Kosan

Chiba, Japan

450 Group I/II/III

Spring

Jingmen Petrochemical

Jingmen, Hubei province, China

250 Group I

H1 2012 for 30-40 days; plant will be revamped by end-2012 to boost production to 300,000 tonnes/year, including new Group II capacity

Integrated Refinery Petrochemical Complex

Rayong, Thailand

320 Group I

Mid-2012 for less than one week; capacity to expand to 340,000 tonnes/year by end- 2012

Formosa Petrochemical

Mailiao, Taiwan

600 Group II

Aug or Sep for around 40-45 days

JX Nippon Oil & Energy

Negishi, Japan

200 Group I

Oct for around 1.5 months

CPC Shell Lubricants

Kaohsiung, Taiwan

250 Group I

120,000 tonne/year line to shut in late 2012  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($1 = €0.77)

Additional reporting by Whitney Shi

For more on base oils, visit ICIS chemical intelligence
Please visit the complete
ICIS plants and projects database
Read John Richardson and Malini Hariharan’s blog –
Asian Chemical Connections


By: Yeow Pei Lin



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