China high-viscosity Group II base oils to rebound in Q2

01 April 2014 07:25 Source:ICIS News

Focus story by Whitney ShiChina high-viscosity Group II base oils to rebound in Q2

SINGAPORE (ICIS)--The prices of high-viscosity Group II base oils in China are expected to rebound in the second quarter of 2014, supported by demand growth during the seasonal consumption peak of March-May, market sources said on Tuesday.

Group II base oil prices in east China have been on a decline since the start of the year mainly due to oversupply of the material in the first quarter but market sources expect this trend to come to an end in April.

In east China, Group II N500 base oils was traded at yuan (CNY) 9,625/tonne ($1,552/tonne) on 28 March, a decline of 3.27% from its value of  CNY9,950/tonne on 3 January, according to the assessments of ICIS C1 Energy.

However, the downtrend is expected to come to an end in line with rising demand when lubricant companies prefer high-viscosity grades to make lubricants, sources said.

A rebound in domestic prices is also expected because of decline in imported cargoes as they become more expensive due to the depreciating value of the Chinese currency against the US dollar, the sources said.

Oversupply in the first quarter was caused by a record rise in the production of high-viscosity Group II base oils since the second half of 2013 along with higher output ratios and a new plant start-up in China.

Hainan Handi Sunshine Petrochemical, a major supplier of Group II base oils in China, increased the output ratio of high-viscosity 82 (N400) to 40% from 5% in November 2013, after the company wrapped up a three-month turnaround, a company source said.

The adjustment in base oils output ratio was a result of changes in feedstock after the turnaround, the source said.

Meanwhile, Panjin Northern Asphalt started up a 400,000 tonne/year Group II base oils plant at Panjin in Liaoning province in late October 2013, thus leading to rising Group II supply in the domestic market, the market sources said.

As for the Asian market, there are almost no turnaround schedules for Group II base oils units throughout 2014, and most producers have been running their units at over 90% of capacity.

South Korea’s SK Lubricants is expected to increase its exports of high-viscosity Group II base oils supply to China in 2014 as operations stabilise at its 300,000 tonne/year Group II unit, which came on line in the second half of 2013, the sources said.

However, it may not result in overall higher imports of the material by China.

Taiwan’s Formosa Petrochemical Corp (FPCC) also increased its high-viscosity Group II base oils supply ratio to mainland China by 10 percentage points from the beginning of 2014, the sources said.

But weaker Chinese currency may again keep buying interest muted.

FPCC’s base oils supply made up around 30% of China’s total Group II imports in 2013, according to data from the General Administration of Customs (GAC).

($1 = CNY6.20)

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

By Whitney Shi