China seeks base oils from Europe, US on low Asia supply

By: Whitney Shi | 03 May 2016

focus story

SINGAPORE (ICIS)--Chinese importers have been seeking base oils from Europe and the US since April as supply of high-viscosity Group II grades in Asia is tight, industry sources said on Tuesday.

Taiwanese producer Formosa Petrochemical Corp (FPCC), which is a major supplier to China, cut its Group II term supply to China by half for June ahead of a turnaround at its plant late next month.

South Korean refiners also reduced their Group II spot supply to China in view of robust demand from southeast Asia and India, market sources said.

Tight supply, together with robust demand from downstream lubricant producers, supported Group II base oils prices in China for the whole of April.

Spot prices of N150 grade gained yuan (CNY) 225/tonne from end-March to CNY6,275/tonne, while the N500 grade increased by CNY650/tonne over the same period to CNY8,400/tonne, according to ICIS data.

Chinese importers have been aggressive in procuring cargoes from the spot import market as they generated as much as CNY1,000/tonne in margins last month, industry sources said.

A deal was concluded last month with US producer Chevron for about 10,000 tonnes of Group II base oil supply, with the cargoes scheduled to arrive in China in early June, according to major Chinese importers.

Market sources said that base oils' import cost is currently high, but Chinese buyers are betting that Asia’s supply of Group II base oil will remain short in May-June amid a seasonal spike in demand from lubricant companies in China, the importers said.

Because of surging prices of Group II base oils, some lubricant producers have taken to substituting them with Group I grades, market sources said.

Group I SN500 is currently priced lower than the Group II product by around CNY1,000/tonne, according to ICIS data.

China relies on supply of high-viscosity Group I base oils from southeast Asia following the shutdown of domestic plants by energy giant PetroChina due to poor margins.

But supply in southeast Asia is also tight amid a pick-up in domestic demand, prompting Chinese importers to seek cargoes from Europe.

A deal has been concluded for the import of 8,000 tonnes of Group I SN500 from a refiner in Poland, with the cargo scheduled to arrive in China in late June, according to the importers.

Chinese importers were not so concerned about the current lack of margins, as import costs were almost the same as the mainstream traded prices of base oils in China.

They expect supply to remain tight in China next month, market sources said.

Some market players, however, raised concerns that demand could weaken in June, when the traditional lull in consumption starts.

If more deals are concluded in May and imports from Europe and the US remain large, stocks in China will climb in July and weigh on prices, they said.

Graph reports Find out more about our news service »
Be the first to receive breaking news
Gadgets

ICIS News ensures you are able to react quickly to market changes, minimise risk and seize opportunities while staying competitive in this dynamic industry.

Our news service brings you all of the following:

  1. Access to real-time news for key chemical markets around the globe
  2. Exclusive plants and projects news, including the latest on capacity, outputs and shutdowns
  3. Expert analysis pieces examining key market trends and hot issues
  4. Force majeures, closures and deals and their impact on commodity prices
  5. A searchable archive with over 1.4m articles spanning 10 years
Request a free trial of the news service »
Stay abreast of the Asia and Middle East markets

Pricing information

Support your daily trading activities with immediate access to the latest price assessments and developments for over 180 commodities across the dynamic Asia and Middle East markets. Information includes:

  • Spot price assessments (CFR, FOB, DEL)
  • Key price drivers and market developments
  • Upstream and downstream information
  • Plant maintenance schedules and outages
Request a free sample report »

China annual reports

The ICIS China Annual Report anticipates where the Chinese market is headed and guides your production and investment strategies by providing:

  • Supply and demand forecast data and analysis
  • Import/export levels and capacity expansion plans
  • Downstream demand overview and outlook
  • Analysis on key issues and developments in the market

Price forecast reports

Produced by ICIS Consulting, our Asia forecast reports identify where prices are heading, providing the insights you need to make confident and faster decisions. The reports includes a rolling 12-month price forecast, sentiment index on price expectations, information on upstream feedstocks as well as summary capacity and trade flow data in the Asian region.

Find out more about our price forecast reports »

Supply and demand database

ICIS gives you access to an online database, providing an end-to-end perspective across the global petrochemical markets. Data includes import and export volumes, consumption, plant capacities and production – from 1978 up to 2030 – by product, country and region..

Enquire about the supply and demand database »

Latest news from ICIS

US Nov MEG contracts fall on better supply, slower demand but Dec could turn bullish

HOUSTON (ICIS)--An improved supply picture and slowing demand conditions led to a decrease in the  US November ethylene glycol industrial-grade... Fri, 17 Nov 2017

Poland's Grupa Azoty ZAK confident on plasticizers growth as Asia urbanises

LONDON (ICIS)--Grupa Azoty ZAK is confident about the growth and longevity of plasticizer dioctyl terephthalate (DOTP) as end markets are set to... Fri, 17 Nov 2017

Chemical M&A - is the party nearly over?

It’s been a roaring mergers and acquisitions (M&A) cycle in global chemicals, featuring strong levels of activity, a number of mega deals, and heady... Thu, 16 Nov 2017

Market Outlook: Global polyolefins outlook driven by supply/demand dynamics and China policies

Getty Images ICIS forecasts growth in polyolefins consumption in Europe in 2017 and 2018, making continuity of supply a key issue for... Thu, 16 Nov 2017

Spain’s Cepsa, ADNOC budget $600m for Abu Dhabi’s LAB plant

LONDON (ICIS)--Cepsa and ADNOC aim to invest around $600m in their paraffins and linear alkyl benzene (LAB) plant in Abu Dhabi, the head of chemicals... Thu, 16 Nov 2017

INSIGHT: Salts of the Earth

By Andy Hemphill LONDON (ICIS)--Deep in the Australian outback, amid barren, featureless desert countryside reminiscent of Mad Max, lies a series of... Wed, 15 Nov 2017