Tianhe Chemicals Group reported Friday that it has finished building a plant that would upgrade base oils to API Group II and III base oil but that it cant stream until residents follow government orders to relocate from the nearby area.
In the meantime, the firm remains gung-ho to begin offering specialty lubes. The lubricant additive company said it plans to sell finished lubricants for applications such as agriculture equipment, trains and planes beginning early next year.
We believe we are well-placed to take advantage of the sizeable market opportunities presented for lubricating oil amidst the current competitive landscape, said Chairman and Executive Director Wei Qi said in an Aug. 18 regulatory filing.
As described by the company previously, the base oil project would be unusual in a couple respects. First, there are few facilities in the industry that are used to upgrade base oils produced or partially refined at other locations. Second, no existing lubricant additive companies refine or finish base oils, though a few refiners – such as ExxonMobil, Shell and Chevron – own or have interest in additive suppliers.
Located at the site of Tianhes main lubricant additive manufacturing site, in Jinzhou, China, the base oil finishing plant was supposed to have nearly finished in 2014. In preparations for a public stock offering conducted in June of that year, the company said it had spent 2.1 billion of a budgeted 2.9 billion on the project by the start of 2014. Officials later said the facility would have capacity to upgrade 400,000 to 500,000 metric tons per year of base oil to Group II and III.
Later still the company said the project would use at least some of that base oil to make what it called fluoride lubricating oil. Tianhe has two main businesses. In addition to lubricant additives, it supplies specialty fluorochemicals.
According to last weeks filing, the project is virtually complete now, but its start-up is being delayed by residents. The major construction of the Group II/III base oil project and fluoride lubricating oil project has been completed, and machines and equipment have been properly installed, Qi said. Yet, part of the ancillary facilities essential for production have not been constructed to date, as some local households refused to cooperate with the relocation arrangement of the local government. Tianhe said the negotiations between local government and residents are ongoing.
The delay has not hampered Tianhes plans to enter the finished lubricants business. Since the base oil project is off schedule, Qi continued, the company has decided to proceed with the production of specialty lubricating oil by externally procuring different types of base oil so as to capture the market opportunities and enter into the downstream lubricating oil business as soon as possible. He said the firm has already selected suppliers of Group II, III and other synthetic base stocks.
Tianhe said specialty lubes – particularly for agricultural machinery, railway and aviation segments – will round out its portfolio, and its banking on those industries to offer ample room for growth.
Chinas market for [lubes for] agricultural applications, for example, remains at a nascent stage of development; there are no leading products, and most producers are small-scale enterprises, the statement continued.
Tianhe, which has claimed to be the largest Asian supplier of lube additives, said that although it had paused lube additive capacity expansion projects last year, market conditions are once again favorable for resuming construction of units that will produce ashless dispersants and detergent lubricant additives. It expects to complete those projects before the second half of next year.
Construction of production units for individual lubricant additive components in Qinzhou, Guangxi, however, are still on hold.
Tianhe, which has been suspended from trading on the Hong Kong Stock Exchange since May following an ongoing dispute with the exchange over some its regulatory filings, reported its half-year results last week as well.
Gross profit and revenue for the lubricant additives segment declined from the prior year. Gross profit margin for the segment was stable, at approximately 44 percent. Domestic demand for certain lubricant additives was subdued during the period, leading to a 23 percent drop in sales. Export sales, however, increased nearly 56 percent.