India and China are gradually reducing their reliance on imported base oils, and their current suppliers might have to find alternative outlets, ICIS analysts observed at the 17th ICIS Asian Base Oils and Lubricants Conference held here earlier this month.
Both countries have steadily increased domestic production of base oils and this has allowed them to meet a larger part of their growing base oil demand. Domestic production has ramped up in India, with API Group II and Group III base oil run rates anticipated to stay high, according to Matthew Chong, ICIS’ senior editor for Asia-Pacific.
Group I capacity growth in India has started to stagnate, while Group II and Group III capacity was anticipated to increase further from 2027. Run rates for these two categories of base stocks were expected to remain steep to fulfill growing domestic demand. That is because India’s base oils demand shows one of the strongest growth rates globally, Chong said, although Group I and Group II demand growth has started to moderate since 2024 and is likely to stabilize by 2027.
India’s Group II and Group III imports come from diverse sources, with South Korea remaining the main one for these two categories. India also continues to import substantial volumes of Group I cuts from the United Arab Emirates and Iraq, likely to be Iran-origin Group I material. Last year, there was also a surge in Russian Group I imports.
Unlike China, India base oil exports are making slow progress and are unlikely to increase significantly due to a domestic supply shortfall. Chong expects India to remain a net importer in the long term, with demand driven primarily by Group II and Group III requirements. At the same time, import volumes are anticipated to shrink as domestic supply increases. India’s export outlets are also fairly limited, as there is less of an incentive to export due to the supply shortfall in the country, with India exports targeting neighboring regions and Africa. Some exports seen moving to the UAE were thought to be re-export cargoes.
Looking ahead, India was expected to reduce Group II and Group III imports more significantly in the coming years, as the Indian government pushes for self-sufficiency in the energy and petrochemical sectors.
Indeed, India has been ramping up its base oil capacity with significant investments. By 2028, India will have attained an additional capacity of 1.5 million metric tons per year. These expansions have received support from the government as it pushes the industry to achieve self-reliance under the “Made in India” initiative, Michael Connolly, ICIS’ head of refining and base oil analytics, said.
Indian Oil Corp. Ltd. (IOCL) will be expanding its Group II and Group III output in all Indian regions. The company is expected to expand Group II/Group III capacity at its Haldia plant by 270,000 tons per year from its current 311,000 t/y by the end of 2025. Additionally, it plans to bring new Group II capacity on stream at its Koyali (Gujarat) unit in the fourth quarter of 2025. IOCL also intends to expand its Chennai and Panipat refineries by 2028-2029.
Hindustan Petroleum Corp. (HPCL) will be expanding its Mumbai plant to produce an additional 289,000 t/y of Group II grades by 2027-2028. Bharat Petroleum Corp. (BPCL) is currently not planning an expansion at its 430,000 t/y Group II plant in Mumbai as this unit is one of the largest ones in the country.
Number One Producer
China is still the top base oil producer in Asia, claiming a 42% share of total production in the region, followed by South Korea at 19%. Asia’s existing base oil capacity was estimated at more than 33 million tons in 2024, up by 3% from 2023, according to the ICIS Supply and Demand database.
In fact, China has built so much new capacity that some plants have been running at reduced rates for quite some time to avoid oversupply, Whitney Shi, ICIS’ Senior Industry Analyst, China, noted. Not surprisingly, China’s base oil capacity growth has slowed down over the last five years, with the average growth rate pegged below 10%. This is partly attributed to the fact that Chinese base oil producers have halted Group II base oils capacity expansions and start-ups amid oversupply since 2021. As a result, China has been increasingly seeking export outlets to offset excessive output and variable domestic demand.
Despite a reduction in Group I production and the idling of existing Group I plants, this category’s share of the Chinese market is still significant at close to 29% in 2024, from 28% in 2023, amid limited new capacity.
The market share of Group II production also fell slightly to 52% from 53% the previous year as producers targeted an increase in Group II+ and Group III output. Capacity for these two categories has risen steadily in the last five years to capture 19% of the market share. Shi noted that China’s base oil production rose to 5 million tons in 2024 on higher operating rates at local Group III units.
China’s apparent base oil consumption continues to fluctuate, depending on many factors including economic conditions, the COVID-19 pandemic and an increase in vehicle electrification. The consumption volumes in 2024 were still lower than during the pandemic in 2020 and 2021. China’s base oil demand remains slow despite several government measures to boost the economy. In the first quarter of 2024, demand showed a positive trend, but turned sluggish from the second to the fourth quarter. Demand has also remained below expectations so far this year due to economic uncertainties and an ongoing trade war with the United States.
The lackluster demand levels were also reflected in the downward trend observed on base oil imports over the last five years. Import volumes fell to 1.54 million tons in 2024, down by around 12% from the previous year, with imports of Group II and Group III grades particularly showing a downward adjustment as more end-users turned to local cargoes.
South Korea remains the main source of Group II and Group III imports, but most Asian refiners’ exports to China fell amid oversupply conditions, especially of Group II grades. At the same time, Thailand and Saudi Arabia increased bright stock 150 exports to China as the import arbitrage opened.
“Despite an increase in domestic production, China is still a net importer of base oils, although the country’s exports have surged in the last five years and are likely to continue increasing due to an oversupply of Group II grades,” Shi remarked.
Sinopec Maoming and Gaoqiao Petrochemical remain the key exporters, with Singapore and India positioned as the top two export destinations for Chinese base stocks. In the early part of 2025, there was a slowdown in exports due to a turnaround at Sinopec Gaoqiao’s plant. Other local Group II refiners were also expected to start exploring export opportunities due to fierce price competition in China.
In the first half of 2025, China displayed a dynamic base oils supply scenario, although no fresh units came on stream. Regular maintenance carried out at several Group I and Group II units in the second quarter diminished availability, while operating rates for Group III units were largely steady, although they dropped in late May due to bearish demand. The weak demand trend is expected to persist as the trade war with the United States has not been resolved. The tariffs have restricted the export of vehicles, causing lubricant companies to reduce purchases of Group II and Group III base oils.
Group I grades may be an exception in terms of imports to China, with permanent plant closures in recent years tightening the global supply and demand balance, against an ongoing need for China to continue securing foreign Group I base oils.
A total of 2,395,000 t/y have been shuttered since 2020, with nine plants closing in Europe, Asia and Africa. Within the last three years, three Group I refineries were closed permanently, including that of Eneos in Wakayama, Japan (355,000 t/y capacity), in 2023; Eni in Livorno, Italy, (590,000 tons/year) in 2024; and PetroChina in Dalian, China (450,000 tons/year) in 2024 as well.
Connolly explained that the price gap between Asia and Europe Group I light products has remained wide, indicating a tight market. Prices for the heavier grades, particularly bright stock, have also remained higher post-COVID 19 due to reduced global Group I capacity in the past decade. This is likely to change slightly after the ExxonMobil Resid Upgrade Project start-up in Singapore, which will be bringing additional Group II heavy-viscosity base stock to the market.
The startup of new Group II capacities, primarily in India and Singapore later this year, and in China over the last decade, is forecast to add to oversupply for both the light and heavy grades in Asia, especially in the latter part of 2025, Connolly said. Projected additional capacities of over 600,000 t/y starting up in key regions by 2026 are likely to further depress prices in the Asia market.
Given the planned expansions in Asia during the second half of 2025, the additional product coming into the market is likely to weigh heavily on the Group II segment, but will hopefully ease the stress on bright stock, Connolly concluded.