China Group II base oils may halt gains on demand slowdown

SINGAPORE (ICIS)–China’s low-viscosity Group II base oils prices are likely to be stable after posting a 3% gain in August, with the expected slowdown in downstream demand amid ample supply, industry sources said on Thursday.

On 1 September, imported materials of Group II N150 base oils were traded at an average yuan (CNY) 7,100/tonne ex-warehouse (EXWH) in east China, up by CNY225/tonne or 3% from early August, according to ICIS data.

Market players expected limited room for further price increase in the N150 grade as downstream lubricant producers would only replenish their base oils inventory on a need-to basis in view of slower demand from the transportation sector.

In the first seven months of 2017, passenger car sales volume in China grew at a much slower annual pace of 1.95% to around 12.9m, according to data published by China Association of Automobile Manufacturers.

In the same period last year, the country’s passenger car sales volumes posted an 11.13% growth.

Buying interest for cars in China this year was dampened by the increase in purchase tax on low-emissions autos and those with engines that are less than 1.6 litres in size, to 7.5% from 5.0%.

Demand for low-viscosity Group II base oils typically peaks in China in September-November, as downstream users have to raise their proportion of low-viscosity grades and cut the use of high-viscosity base oils amid cooler weather.

“End-user demand has not picked up as we expected since September, so we are not in a rush to replenish our [base oil] stocks despite low inventory levels,” said a major domestic lubricant maker. 

Meanwhile, increased domestic supply will also weigh on Group II base oil prices. This has prompted some local producers to adjust down their offers by CNY100-200/tonne at the start of September, industry sources said.

Sinopec Maoming Petrochemical will add around 10,000 tonnes of spot cargoes per month to the domestic market following the restart of its 250,000 tonne/year Group II/III base oils unit in Guangdong province in late August, they said.

Meanwhile, prices of high-viscosity Group II base oils may trend softer towards the end of the year due to dwindling demand for such grade in winter, they said.

On 1 September, traded prices of imported Group II N500 base oils were assessed at CNY8,675/tonne EXWH east China, down by CNY150/tonne or 2% from early August, ICIS China data shows.

Focus article by Whitney Shi

($1 = CNY6.52)

Pictured above: Qingdao port in China. (Source: REX/Shutterstock)