LONDON – Bucking the global recession, China’s lubricant demand rose more than 6 percent from 2008 to 2009, to 6 million metric tons. PetroChina expects lube consumption to climb to nearly 8 million tons by 2015, but the country will need to import more than 2 million tons of base oils annually to satisfy that demand.

Kong Jinyuan, senior engineer and registered consultant with PetroChina Planning & Engineering Institute in Beijing, provided timely supply-and-demand and pricing data on China’s base oil market at the ICIS World Base Oils & Lubricants Conference here on Feb. 19.

In 2008, Kong said, China’s domestic lubricant consumption was 5.7 million tons. It rose by 6.1 percent, to more than 6 million tons, last year. By contrast, global demand “suffered a painful double-digit decline, in the range of 12 to 13 percent,” she said, citing data from Fuchs Petrolub AG.

“Why the lube demand?” Kong asked. One answer is double-digit growth in ownership of civil-sector cars. “Demand for engine oils is the key driver of high growth in lube demand in 2009,” she said, especially demand for gasoline engine oils, which is growing at over 12 percent per year.

Market share in China’s competitive finished lubricant market was stable last year, Kong continued. PetroChina is the market leader with 26 percent; Sinopec has 21 percent; multinational oil companies in China together hold 30 percent; local blenders have 17 percent; recycled oils account for 4 percent; while imports account for the remaining 2 percent.

Turning to base oils, Kong noted that naphthenics account for 19 percent of demand. This reflects China’s huge output of tires and shoes, where rubber processing oils are needed. Top-tier API Groups II and III make up 15 percent of demand, and “the rest is so-called Group I, but there are a lot of poor oils.”

China’s two largest government-owned majors, PetroChina and Sinopec, together supply 3 million metric tons of base oils per year. That figure has been stable since 2000, Kong noted, although total base oil demand rose from less than 4 million tons in 2000 to 5.6 million tons in 2009. Imported base oils and other domestic sources, including CNOOC and local refineries, make up the difference.

Base oil imports rose from 450,000 tons in 2000 to 1.88 million tons last year, an average annual growth rate of more than 17 percent. From a different perspective, Kong pointed out, the proportion of imports to total base oil demand rose from 12 percent in 2000 to over 30 percent last year.

Korean and Japanese refineries supply more than 37 percent of China’s imported base oils, followed by Singapore and Malaysia with 35 percent. Russia supplies 12 percent, Uzbekistan 4 percent, Taiwan 3 percent, and other sources the remainder.

Quantities from Russia and Uzbekistan increased in 2009, and will increase more in 2010. “They are always cheaper than other imported resources,” Kong said. “Group III oils from Malaysia were hot in 2009. Etro [from Petronas] entered into China’s market and is welcomed.”

“The average price of total imported oils is $712 per ton,” said Kong, but base oil from Uzbekistan is just half that price.

Kong identified 2009 sources and average prices of China’s base oils:

China’s 2009 Sources & Prices of Imported Base Oils (total 1.9 million tons)
Source	Quantity (tons)	Average price/ton
Singapore	626,000	$753
Korea	455,000	$731
Japan	247,000	$793
Russia	233,000	$602
Uzbekistan	76,000	$365
Taiwan	60,000	$794
United States	51,000	$640
Malaysia	38,000	$693
Indonesia	23,000	$687
Holland	22,000	$556
Others	52,000	$754

Source: PetroChina

Although base oils from Japan and Taiwan are higher priced, Kong noted, they “are still welcomed in China’s market.”

Kong next looked at China’s future base oil supply. “Demand keeps rising,” she said, “but new capacity is still on the way.”

Three producers are promising to stream new capacity over the next few years. The first to stream, said Kong, will most likely be CNOOC’s Group II/III plant in Huizhou, coming in late 2010 or 2011 with 400,000 tons per year. The second to follow shortly after is Sinopec’s 450,000 ton per year Group II/III plant in Yanshan. Last, said Kong, will be PetroChina’s Dalian Group II/III plant, in late 2011 or 2012, with capacity of 300,000 tons per year.

Kong summarized her forecast for China’s future base oil supply and demand.

China’s Base oil Supply/Demand Outlook (in millions of metric tons)
	2009	2010	2015
Lube demand	6.1	6.46	7.85
Base oil consumption	5.6	5.9	7.13
Base oil supply (PetroChina, Sinopec & CNOOC)	3.2	3.4	4.85
Gap (met by imports, local refineries)	2.4	2.5	2.28

Source: PetroChina

China’s economy continues to grow at a stiff rate. “Over 15 million cars will be sold in China in 2010,” Kong concluded. The demand for lubricants and for base oils will continue to rise, while global demand declines. Imported base oils will play a more and more important role in China in coming years, she said, before sufficient new domestic capacity comes into operation.