A large number of new base oil plants and expansions have come onstream in recent years, creating a large overhang of supply. In October, Kline & Co. consultants estimated that supply now exceeds demand by 3.1 million tons per year, or 9 percent. That surplus has driven down prices, causing refiners to complain that the base oil business is tanking. But analysts warn that the situation could get worse before it gets better. With numerous additional projects expected to add approximately 9 million t/y of capacity in the next decade, analysts say the surplus will grow even bigger and trigger a rash of plant closings.

They just keep on coming, said Stephen B. Ames, principal of United States-based SBA Consulting. Were going to have a surplus for quite a while until the market shakes out and some of the less efficient plants close.

Hengli is a private company formed in 1994. For most of that time the company focused on textiles and chemical fibers, but in 2012 it opened a purified terephthalic acid (PTA) plant, the first phase of a petrochemical complex on Dalians Changxing Island. CLG said the base oil plant will also be located on Changxing.

CLG said Henglis base oil plant will use its Isodewaxing and Isofinishing technologies, along with catalyst material supplied by CLG. In addition to Group II and Group III stocks, the plant will produce white oils.

A slew of base oil projects have streamed in China the past few years, but the country – one of the worlds two largest finished lubricant markets – remains the biggest net base oil importer. Analysts conclude, therefore, that its not unreasonable to say that it needs more base oil.

In China, Im not surprised by anything, Ames said.