Historically, base oil procurement was long a challenge for lubricant blenders in China. PetroChina and Sinopec nearly had a corner on domestic production, and they focused primarily on their own internal base oil needs. Importers had difficulty filling the supply gap, forcing independent blenders to scrounge for barrels and creating a market that was lucrative for traders. As Zhang noted, this attracted many to the business.

Trading was very easy and very profitable, so many companies entered the market without much experience or expertise, he said.

Base oil producers were also making good returns, and this led to a rush of plant construction and expansion both in China and the region. Zhang listed 13 new plant openings or expansions that have added approximately 6.7 million metric tons per year of capacity to the Asian and Middle Eastern supply since 2012. He said seven of those were Chinese projects that added more than 2.3 million t/y to domestic capacity.

China remains a net importer of base oils, Zhang said, but the recent domestic projects have for the moment eased the requirement for imports. Coupled with the growing overhang in the international market and a slowdown in demand growth, the increase in domestic supply has turned China from a sellers to a buyers base oil market.

Prices have fallen for most, if not all grades, and some refiners in the country and the region have cut back on operations.

A lot of refineries are reducing or stopping production, Zhang said. We can also see that they are afraid to make investments in expanded or upgraded capacity.

There has also been an increase in the number of lubricant blenders that acquire base stocks directly from producers. The net effect, several speakers said, has been less business for traders.

Cut-throat competition between traders has caused heavy losses, Zhang said. He added that many increased the volume of stock they were holding out of misplaced confidence that prices would remain high. When prices fell it amplified their losses.

Several speakers said that traders have started going out of business, and they agreed in predicting that more will be forced out of the market. Some talked of traders shifting their business model to that of distributors who focus less on finding base oil supply and more on the services that go along with base oil procurement.

The era of many traders scrambling [to deliver cargoes] in the base oil market has ended, Zhang said. The function of base oil trading will transfer to some extent back to refineries. There will still be some need for traders, but their function will change from speculation to the agent that ensures supply and service between refineries and lube plants.