China Lube Demand Keeps Rising


China Lube Demand Keeps Rising
Workers operate a lift at a construction site in China in old-town Jiangwanzhen, Hongkou district. Infrastructure projects have boosted lubricant demand in China. © NG-Spacetime /

China’s lube demand is projected to grow about 3% to 8.2 million tons in 2021, boosted by demand stemming from new infrastructure projects, according to Chinese research firm Oilchem.

The growth rate would be higher but will be dampened by the spread of electric vehicles across the country and by the rising quality of engine oil used in the market, said another analyst, industry consultant Zhang Chenhui.

“Longer oil change intervals and growing EV adoption [will] cut back lube consumption greatly, even offsetting the demand from new infrastructure projects,” Zhang told Lube Report.

China has laid out some major infrastructure projects, including adding elevators to old residential buildings in big cities, improving infrastructure in rural areas and speeding up installation of infrastructure for 5G networks.

On the other hand, China sold 2 million passenger vehicles in January, up 26.8% from January 2020, when China’s automobile industry was hit by the pandemic, according to the China Association of Automobile Manufacturers.

“The demand for lubes won’t change much in the coming years,” Zhang said.

In the short-term, demand is likely to run high because of price hikes announced recently by major lube suppliers in China. Companies cited several reasons for the increases, including a crude oil price bounce, base oils shortages due to the pandemic and rising costs for additives and packaging.

Among the lube suppliers raising prices are Shell, which will raise price by 8%-10% from March 10; ExxonMobil, 8% on March 5 and Sinopec, 5%-10%, on Jan. 23.

Zhang said those announcements are spurring end users to stock up before the markups take effect and will in turn require lube blenders to purchase more base oil. “The hoarding [of base oils by blenders in China] probably will last until the end of March,” he said. “After that, we will see demand fall again.”

The outlook is similar for API Group II base oils. Recent price increases urged many lube blenders to hoard, but in general, the market is oversupplied, according to Oilchem.

The company estimates that Chinese refiners churned out a record 8.8 million metric tons of base oil in 2020, despite numerous refineries being closed for several months due to the COVID-19 pandemic. The 2020 output, which was motly Group II, was up 11% from 7.9 million tons in 2019.

In comparison, China’s lube demand in 2020 was 8 million tons. While that represented a 10% increase from 2019, the country’s lube demand declined by a compound annual rate of -4% between 2015 and 2020.

“The pandemic didn’t change the reality that Group II oils are excessively supplied in China, and it will continue to be so for a while as demand for lubes will be stagnant,” Zhang said, adding that more companies are adding base oil production capacity in 2021. Two refiners – Hainan Handi Sunshine and Sinopec Yanshan – plan to add 720,000 tons per year and 150,000 t/y capacity of Group II oils, respectively, in the first half of 2021. The current capacity in China is 21.3 million t/y.

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