NANJING – Chinese imports of South Korean base stocks fell significantly in the middle of this year following several plant openings and expansions within China, an industry analyst said at a conference here last month.
China imported 1.5 million tons of base oils during the first half of 2019, up about 3 percent compared to the same period last year. For July, however, the level of imports dropped 31 percent year over year to a six-year low, according to petrochemical market information provider ICIS. South Korean base oils still enjoy a leading 34 percent share of imports during the first half, but the volume of that share plunged 9 percent compared to the same period of 2018.
One major reason for the decline is Chinas rapidly growing capacity to make API Group II base oils. That capacity currently sits at produce 5.2 million metric tons per year, and another 3.4 million t/y of capacity is under construction, according to Sinopec.
The [domestic] capacity guarantees sufficient supply, ICIS Senior Analyst Whitney Shi said Sept. 19 at the Enmore Lubricants and Raw Materials Summit. Also, quality has been largely improved in recent years to replace a good quantity of Korean Group II oils.
Because the ongoing trade war between China and the United States stands to hurt Chinas manufacturing sector, Shi predicted the countrys demand for base oils will likely remain low in the fourth quarter of 2019.
Another reason for the decline in imports from South Korea is increasing supply from Middle East refiners, especially those from the United Arab Emirates and Qatar, Shi said.
We saw a growing supply of Group III oils from the Middle East, as well as Malaysia. They are taking Korean oils market share, she continued.
Among the new Chinese capacity, attendees at the Enmore conference cited a Group III coal-to-liquids plant opened in Shanxi province by LuAn Group. The domestic coal giant began selling those base oils in June. According to various event attendees, the quality of those oils is high and will spur demand for them.
Korean refiners [are] likely to see exports to China continue to decline in the coming years, Shi said.
Few changes were seen domestically on the export side. China loosened its grip on base oil exports in 2016, but has yet to issue any incentive policies to encourage more exports. According to ICIS, Sinopec is currently the leading base oil exporter in China, but these oils, namely Group I and II, are mostly shipped to Singapore to supply its own trading company.