China to see stable-to-soft Nov base oils demand on lull season

Author: Whitney Shi

2020/10/27

SINGAPORE (ICIS)--China’s base oils demand is likely to be stable-to-lower in November, several market players said, as the market enters a seasonal lull period.

Despite September-October being the traditional peak demand season for base oils in the domestic market, downstream lubricant producers showed lukewarm buying appetite this year.

On 23 October, the average Group II base oil 150N prices were at $467.5/tonne, on both CFR (cost & freight) China and FOB (free on board) northeast Asia basis, up by $17.5/tonne from late September, ICIS data showed.

Meanwhile, the average ex-terminal prices for Group II base oil 150N in east China stood at yuan (CNY) 5,325/tonne, flat from late September, according to the data.

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Domestic spot prices for Group II base oil 150N were expected to see support during the traditional peak season, but this year, the coronavirus pandemic had dented blending demand. Downstream lubricant producers largely purchased on a hand-to-mouth basis.

Start-ups of new domestic Group II base oil plants in the recent couple of years led to a severe supply glut. This, combined with limited exports, saw strong competition among Chinese Group II base oil producers.

As such, the gap between CFR China prices and FOB northeast Asia prices for Group II base oil 150N narrowed and eventually disappeared in September-October.

Another factor was the surging demand from southeast Asia in the third quarter, after strict lockdown measures to contain the coronavirus pandemic were eased.

Countries in the region imported a large number of Group II base oil 150N cargoes in September-October, while interest from Chinese importers for Group II base oil 150N imports were dampened by firm costs.

After mid-October, purchases from downstream lubricant producers slowed down as compared with September, major traders said. They added that Sinopec Yanshan Petrochemical’s 240,000 tonne/year Group II base oil plant, which had been idled, will resume production in December.

This, coupled with no expected maintenance plans at domestic Group II base oil plants in the year-end period, is expected to further increase low-viscosity Group II base oil supply.

On the demand front, many lubricant producers have planned for year-end sales promotion of lubricant products. Their purchasing volumes for base oils saw a significant decline for a large part of the year, as the pandemic dealt a heavy blow to sales of industrial lubricants and vehicle-use lubricants, major domestic lubricant producers said.

The possibility of a coronavirus resurgence in November-December with the onset of colder weather, as well as the typical lull season for base oils starting in November, are expected to dampen buying interest further, they added.

Photo: Imaginechina/REX/Shutterstock

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Focus article by Whitney Shi

ICN