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May 3, 2019

Volume 7 Issue 3

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Chinese Base Oils Mismatch Need

Suzhou, CHINA – After more than a decade of steady investments, China has capacity to make more base oil than it consumes. But that capacity is a poor match for the mix of base oils that the country needs, a consultant said at a recent industry conference, leading to significant under-utilization.

China’s finished lubricant demand grew rapidly in the 2000s and early 2010s, making it one of the world’s two largest markets – along with the United States. The nation’s base oil supply base initially failed to keep pace, and it became the world’s largest base oil importer.

For the past several years, though, refiners – especially independents – steadily built new base oil plants or expanded and upgraded existing ones. Addressing Enmore’s China Lubricant Market Focus here on April 17, consultant Zhang Chenhui said the Chinese base oil plants now have capacity to produce 7.2 million metric tons of base oil per year, not counting 1.3 million t/y of output that does not meet API base oil specifications.

But that capacity fails in a couple ways to correspond to the needs of China’s lubricant industry. Just 17 percent of that capacity makes heavy-viscosity base stocks; Zhang estimated that the market needs about twice that much of heavy grades. Chinese plants also make less API Group III base stocks than the market needs, especially 3 and 4 centiStoke Group IIIs, he added.

Zhang said China’s capacity skewed toward light Group II oils because much of the newest capacity was built by independent refiners who chose a low-cost route to enter the market.

“But their investment has been used for the most economical process of hydrocracking tail oil,” he said. “This process is the fastest and minimal way to invest, but the products are low viscosity. This does not match the market, so it causes a serious surplus of low-viscosity base oil. Production of high-viscosity base oil is affected by raw materials and other investment. The amounts being produced in China are insufficient, and the market still needs to import from abroad.”

The lack of sufficient demand for the oils they produce leads many base stock producers to operate significantly below capacity. Domestic plants produced an estimated 4.3 million tons of base oils in 2018, including rubber process oils, he said, meaning the industry produced only 60 percent of capacity. Lubricant blenders still had to import large volumes: 2.7 million tons, which represented a 12 percent increase from 2017.

The nation consumed 6.6 million tons of finished lubricants last year.

Disjuncts between base oil capacity and demand are not at all unusual. Every region in the world produces significantly less of some grade or grades than they need, which is the reason that the global base oil industry has significant and growing volumes of inter-regional trade. The Chinese market is unusual because, although lubricant blenders there are adept at importing raw materials, the nation’s refiners export almost no base stocks.

It appears that some have decided to attempt to export. Representatives of two new producers attending the conference here said their companies have hired staffs to sell base oils into foreign markets.

Zhang noted that China’s base oil capacity is on track to rise even further as several more new plants and expansions are scheduled to come online through the rest of this year. But he maintained that these are unlikely to alleviate the country’s deficit of Group III or heavy base stocks.

“The production capacity of light lubricating oil is seriously over-extended,” he said. “New equipment is mostly [designed to process] tail oil from fuel hydrocrackers. Base oils of serious quality is still seriously insufficient.”