China Base Oil Output Recovers


China Base Oil Output Recovers

Base oil production in China has largely returned to normal levels, but demand in other parts of the world is still down significantly because of the Covid-19 pandemic and may not recover much until late in the year, according to industry insiders and an analyst speaking at a webinar Wednesday.

Production in China is recovering faster than elsewhere because that country emerged earlier from its pandemic lockdown and because profit margins for base oils were flush, Matthew Chong, a senior editor for Asia base oils at ICIS, said during the event, which was hosted by Lubes’n’Greases.

“By the end of March to April, most refiners had already ramped up [base oil] production to 90 to 100 percent,” he said. “This is because of strong base oil margins after the crash in crude oil prices.”

Another panel member, Renkert Oil Vice President of Marketing and Sales Mike Burnett, said the U.S. base oil and process oil supplier sees customers for both types of materials whose orders are still down by 30 to 60 percent.

“The interesting thing there is that every one of those customers have placed in forecasts that are pretty healthy, but they keep pushing them out,” he said. “I had a pretty strong forecast placed in for May. It was pushed out to June. I had a very strong forecast for June that has been pushed out to July, although the June forecast did increase over May. So we are seeing some production coming back with those users.”

Burnett added that he does not expect to see significant recovery in base oil and process oil demand until the fourth quarter. That opinion was shared by panel member Ray Masson, managing director of United Kingdom-based petroleum products trader Pumacrown Ltd., who described demand in some sectors of base oil markets in Europe as be being down by 80 percent.

“We will probably have small, incremental volumes lifted in the domestic [European] market over the next couple months as long as the Covid-19 activity remains where it is at the moment in places like Germany and Spain and Italy, and France, too,” Masson said. “But if there is any relenting on the Covid-19 and there’s any new spikes and secondary infections, then we could see a total lockdown situation again, and that could affect things really negatively.”

Chong said refiners in China sharply reduced base oil production during the country’s lockdown. Five plants with combined capacity to make 1.6 million metric tons per year of base oil closed their plants for anywhere from two weeks to three months beginning in February. Another six plants with combined capacity of 1.4 million t/y reduced operations by 20 or 30 percent for two weeks to two and a half months.

Base oil imports to the country plummeted as well. Volumes for January and February were down 8 percent year to year, he said, while March fell a whopping 39 percent.

Since April, 80 percent of Chinese base oil producers have ramped up production, Chong said. He added that demand has not recovered quite as much as production activity would suggest because margins were motivating suppliers to produce as much as they could. Panel members also indicated that those margins have started to shrink in Asia but remain higher in North America and Europe.

Lubes’n’Greases’ webinar, “Covid-19’s Impact on Base Oil Markets,” was recorded and can be viewed by following this link:

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