Interested in the lubricant industry in Asia?

Subscribe now to Lube Report Asia. This FREE weekly e-newsletter features breaking news and base oil price reports.

December 28, 2018

Volume 7 Issue 3

    View Printer Friendly Article Bookmark and Share

Banner Year for Base Stocks in Asia

Although strained trade relations between the United States and China left many Chinese companies stuck with unexpected tariff increases on lubricants and lubricant additives, Asia-Pacific otherwise thrived, as a number of new plants and expansions came online during the year. Examples included Hengli Petrochemical’s new API Group II and III base oil plant started up in December, and Shanxi Lu’An Group began making both Group III and polyalphaolefins at the same coal-to-liquids complex in Shanxi province, China.

The following are some of the biggest stories in Asia-Pacific during 2018.

Photo courtesy of Hengli Petrochemical

Hengli Petrochemical announced earlier this month the start-up of a Northeast China refinery that includes a base oil plant with capacity to make 350,000 t/y of Group III and 190,000 t/y of Group II.

Trade Relations Crossfire

Trade relations between the United States and China soured early this year, leading to a trade war that left the lubricants industry in the crossfire. The countries imposed three rounds of tariffs – in July, August and September – on hundreds of types of goods imported between China and the U.S. Among the product categories listed are lubricants and lubricant additives.

As a result, prices increased for some lubricant additives and special base oils, and some U.S. and Chinese companies are switching suppliers for some raw materials or at least seeking to procure from different production sites.

The U.S. and China resumed trade talks in November, and agreed to a temporary truce on Dec. 2. Neither country will increase or add new tariffs until March 1, as their leaders attempt to reach a permanent solution.

New Base Oil Capacity

China experienced an influx of base stock production capacity from new projects. 

The country’s state-owned Shanxi Lu’An Group opened a plant in Shanxi province in mid-2018 with capacity to make 300,000 metric tons per year of Group III base oil. At the same complex in Changzhi city, the company also opened a plant with capacity to make 3,000 t/y of low-viscosity polyaphaolefins, adding to 20,000 t/y of PAO capacity at an existing facility.

Hengli Petrochemical then announced earlier this month the start-up of a Northeast China refinery that includes a base oil plant with capacity to make 350,000 t/y of Group III and 190,000 t/y of Group II.

Meanwhile, an expansion of joint venture Hyundai Shell Base Oil’s API Group II plant in Daesan, South Korea, added 250,000 t/y production capacity.

On-again, Off-again Deals in Asia

The on-again, off-again merger of Japanese refiners Idemitsu Kosan and Showa Shell Sekiyu K.K. is officially back on after Idemitsu’s founding family let go of its long-held opposition to the deal.

In early October the companies set April 1, 2019 as the effective date for combining the nation’s second- and fourth-largest lubricant suppliers. The new company – whose trade name will be Idemitsu Showa Shell written in Japanese characters – is set to become Japan’s second-largest lubricant supplier.

In early March SK Innovation announced its plans for an initial public offering for lubricant subsidiary SK Lubricants on the Korean Stock Exchange were back on after been halted in 2012 and again in 2015. The IPO plans, however, did not stay on the table for long. Two months later the company said it was postponing plans because the move failed to achieve the desired valuation for the business.

Shutting Down and Building Up

Hydrodec Group announced plans to exit Australia, the birth place of the technology it uses to rerefine used electrical transformer oils. The Wagga Wagga, New South Wales, facility – which has the capacity to rerefine approximately 20,000 liters per day of used transformer oils – will either be sold or the capacity will be relocated to another facility in the U.S.

Petronas Lubricants announced plans to begin production at its 97,000 t/y lubricant blending plant in Patalgana, India, by the end of the year. In Singapore, Afton Chemical Corp. completed the second phase of its lubricant additive plant on Jurong Island. The facility produces advanced ashless dispersants and antiwear components for lubricants used in passenger cars and heavy-duty vehicles.

Many projects began this year as well. After a one-year delay, CPC Corp., a Taiwanese state-owned petroleum company, began construction on its 30,000 t/y blending plant in southern Vietnam. A few months later Valvoline announced plans to build its first lubricants plant in China. The facility – which is the company’s largest lube blending plant investment to date – will have a capacity in excess of 103,000 t/y, and is expected to begin production in 2020.

Asia’s Industrial Lube Market Stays Strong

Demand for high-performance industrial lubricants in Asia will continue growing, as regulations and new smart technologies – like robotics and artificial intelligence – change the face of the manufacturing industry. Manufacturers in the region will look to optimize their operations and minimize maintenance fees, all while keeping up with the reshaped market. High quality lubricants can help achieve those lofty goals.

More specifically, India’s industrial lubes market is growing at a rate of 3 percent to 3.5 percent year-on-year, primarily due to extensive construction happening throughout the country – mainly on infrastructure projects – causing demand to shoot up.

Base Oil Pricing In Asia

Buyers and sellers in Asia would likely agree that 2018 was not an easy year for the base oils market due to highly volatile crude oil and feedstock costs and a gradual lengthening of supply levels versus flat demand from downstream lubricant segments. The sector entered the New Year riding a wave of rising crude oil values and fairly balanced supply and demand conditions – encouraging producers to introduce higher spot offers.

These conditions persisted into April, when fundamentals started to fray on account of healthy supply against slightly disappointing buying interest from a number of applications, despite the start of the busy spring production season. Nevertheless, supply remained generally strained due to a busy plant turnaround schedule in Asia and in other regions as well, lending support to fairly stable pricing.

In early June, the market seemed to be torn in different directions due to diverging fundamentals, with firm raw material values and tightening supplies exerting upward pressure on spot prices, while lackluster demand of certain grades weighed them down. Spot prices finally succumbed to downward pressure because of lackluster demand and softer feedstock prices in early August, but crude embarked on an upward trek in September, squeezing producers' margins and exerting upward pressure on base stock values once again.

By early November, however, with crude oil prices tumbling, base oil demand showing the typical year-end slowdown, and availability considered plentiful, prices once again became exposed to downward pressure, leading to markdowns in mid-November and early December. While it was not surprising for the market to end the year slightly oversupplied, this year the situation was exacerbated by growing global capacity against fairly low demand growth rates.