China April base oils imports may weaken amid margin squeeze

SINGAPORE (ICIS)–China’s imports of Group II base oils may weaken in April as traders are grappling with margin squeeze and sluggish domestic demand, industry sources said on Wednesday.

Buying interest has been soft since late February as costs have increased, resulting in negative import margins for some base oil grades, they said.

Asian Group II base oils suppliers have raised their spot offers on the back of a supply crunch in the region, market participants said.

In South Korea, GS Caltex’s 1.3m tonne/year Group II base oils plant is currently down for a 40-day maintenance from mid-March; while in Singapore, ExxonMobil’s plant with a 1.6m tonne/year capacity was shut from end-February for a turnaround of the same duration.

On 10 March, import prices of Group II N150 were assessed at $650/tonne CFR (cost and freight) China, up by $60/tonne month on month; while those of Group II N500 increased by $75/tonne over the same period to $860/tonne CFR China, according to ICIS data.

The surge in prices translated into a yuan (CNY) 500-650/tonne spike in import costs for Chinese importers.

“We will continue to raise spot offers for April as supply will remain tight in near term,” said an Asian Group II base oils supplier.

The supplier is considering selling to other markets if Chinese importers resist the higher prices.

In China’s domestic market, there is a lack of a strong upward momentum for base oil prices despite the peak demand season for downstream lubricants.

Domestic base oils prices have also been on an uptrend but at a much weaker pace than imports.

On 10 March, prices of Group II N150 and N500 base oils increased by CNY200-250/tonne from the previous month to CNY7,417/tonne and CNY9,292/tonne, respectively, according data compiled by the China editorial team at ICIS.

Demand for base oils from lubricant producers have remained tepid, as most of them have been relying on inventory built from December to January, market sources said.

Most lubricant producers had procured cargoes in those two months, anticipating tightness in supply due to a slew of plant turnarounds scheduled in the first quarter of this year, they said.

This restocking activity resulted in an 18.4% year-on-year jump in China’s overall base oil imports in December 2016 to 239,701 tonnes, with Group II grades logging the biggest increase, according to industry sources.

Focus article by Whitney Shi

($1 = CNY6.91)

Picture (top): Aerial view of Shenzhen port in China (Imaginechina/REX/Shutterstock)