OUTLOOK ’13: Asian base oil demand to grow; volatility to continue

03 January 2013 02:47  [Source: ICIS news]

By Serena Seng

Engine oils are a major application for base oilsSINGAPORE (ICIS)--Base oils demand is expected to grow modestly in 2013 throughout Asia Pacific though price volatility will continue to be seen on the back of buoyant feedstock gasoil and fuel oil prices, market sources said.

Continued base oils capacity expansions within Asia, for most grades of base oils, will maintain robust supply within the region and cap price hikes of any grade of base oils.

Asian base oil prices have been largely volatile in 2012, fuelled by buoyant gas oil and fuel oil prices, and are expected to remain volatile in 2013 amid geopolitical tensions in the Middle East and a general slowdown in the global economy.

Market participants expect an increase in buying interest ahead of the Chinese New year holidays in early February to help bolster demand, but they pointed out that demand for the large part of the first quarter of 2013 is expected to remain flat as many buyers in Asia will still have sufficient inventory.

These market participants expect demand to improve in the second quarter of 2013 as more buyers return to pick up cargoes after consuming inventory on hand in the first quarter.

Planned capacity expansions in China for Group II base oils in 2013 has led a vast number of market participants to expect China to rely less on imported Group II cargoes from South Korea and Taiwan by 2014.

These plans include Sinopec’s Yanshan Petrochemical’s expansion of its 300,000 tonnes/year Group I base oil plant to a 300,000 tonnes/year Group II base oil plant, and Hainan Handi Sunshine Petrochemical capacity expansion of its Group II plant from 300,000 tonnes/year to 1m tonne/year.

These market participants also noted that if these plants, with their newly expanded capacities, come on stream in 2013, prices may be capped at current levels and are unlikely to see large increases in 2013 because of excess supply.

However, other market participants pointed out that if demand continued to remain weak in 2013, brought about by global macroeconomic woes, the planned capacity expansions may be delayed and a supply-demand balance may emerge.

Asia Group I base oil demand may remain largely stable throughout 2013 as industrial lubricants sector see small growth, market participants said.

However, the price competition between locally produced and imported cargoes will continue to be seen in India and China, especially for light grades such as SN150.

Group II demand in China was expected to be largely met by local cargoes with the exception of heavier grades such as 500N and 600N, which will continue to see import interest from South Korea and Taiwan.

Group III demand is expected to be largely flat amid ample supply

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Serena Seng

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