China base oils may see higher demand and imports in Q3, declines in Q4

China’s base oils demand and import volumes are expected to rise in the third quarter of 2023 amid strong blending requirements in autumn, while drops are expected to see in the fourth quarter.

Trading was active in the first quarter of 2023, while the import volumes declined entering the second quarter in view of a sharp drop in demand. 

Derivative economy in China gradually recovered since December 2022 when the COVID-related lockdowns were lifted, some downstream lubricant producers said.

Most lubricant producers had replenished in February-March, with demand for low viscosity base oils outpacing that of high viscosity grade.

The lubricant producers’ buying interest, however, gradually retreated from April. End-use orders decreased sharply in the second quarter, with sluggish demand seen in the downstream industrial sector, and a sharp fall in offtakes of automotive lubricants. Several large domestic lubricant producers even stated that the sales of automotive lubricants in the second quarter of this year even posted a decrease from a year ago.

Despite signs of bearish downstream buying in July, trading activities are expected to improve from mid-to-late August, as most lubricant producers may pre-buy for the upcoming blending peak season during September-October.

However, the overall purchasing may decline again entering the fourth quarter.

On the domestic supply side, China's base oil supply in the second half of 2023 may increase compared to the first half.

Only three base oil plants in north China will be offline for maintenance in the second half of the year with most having already wrapped up maintenance shutdowns in the first half, while there are no routine shutdown plans in east China and south China.

In addition, by the end of 2023, PetroChina Fushun Petrochemical plans to restart its 260,000 tonne/year base oil plant which had been idled for multiple years, and also expand a 60,000 tonne/year Grade I BS150 production line.

Weifang Hongrun Petrochemical in Shandong will start up its 700,000 tonne/year Group II/III base oil plant in the third quarter, which will also push up domestic supply. 

On the import front, Asian base oil supply will increase in the second half of 2023 as most refineries have completed maintenance shutdown in the first half. In the remaining months of 2023, only one Grade I base oil plant and another Group II unit will undergo maintenance shutdowns from September onwards, according to ICIS data.

China has imported a total of 867,381 tonnes of base oils in January-May 2023, a decrease of 9.09% year on year, according to the ICIS Supply and Demand Database. The import volume in the first quarter showed an increasing trend compared to last quarter, while decreased in the second quarter.

The export volume of China's base oil rose to 60,047 tonnes in January-May 2023, up by 68.64% year on year.

The total base oil imports may increase in the third quarter. On the one hand, downstream lubricant producers will ramp up purchase of imported cargoes amid a pick-up in demand. On the other hand, due to the implementation of new consumption tax policy on 1 July, most domestic base oil refineries have to issue invoices of base oil to pay consumption tax for their low viscosity cargoes, resulting in higher prices of domestic Group II base oil. The narrowing spread between import and domestic prices will also boost interest in imported cargoes.