Under ECFA and other free trade agreements, China imposes no import duties on base oils imported from Malaysia, Singapore and Taiwan, but Taiwan enjoys a price advantage thanks to lower shipping costs, Liu said. Base oils imported from Korea and Taiwan are subject to Chinas 6 percent import tariff.

However, talks are underway for a China-South Korea free trade agreement, and talks on a China-Japan-Korea agreement are starting this year. Korea would like a new agreement as soon as possible, possibly within two years, Liu said. This is a threat to Taiwan base oil sales. Taiwans [domestic] base oil demand is small and stable. Taiwan wants to export to China.

Liu noted that China imposes no import tariff on finished lubricants from Malaysia and Singapore, but there is still a 6 percent tariff on finished lubes from Taiwan. From Korea and Japan, finished lubes, like base oils, are subject to the 6 percent import duty.

Taiwan is an economic power house in East Asia, said Liu, whose economy relies increasingly on its service sector and on the manufacture and export of high-tech products. Low-value, lube-hungry facilities are leaving Taiwan for lower cost countries like Thailand, Indonesia and Vietnam.

Overall, Taiwans base stock demand declined slightly over the past five years, to about 360,000 tons in 2011. Kline estimates the countrys base stock capacity to be 870,000 t/y: 30 percent is API Group I, produced by CPC Corp., and 70 percent is Group II, produced by Formosa Petrochemical Corp. Actual 2011 production totaled about 790,000 tons.

There is a surplus of Group I and Group II currently, which is cleared via exports to Asian countries, Liu continued. The majority of Taiwans exported base oils – 100,000 t/y of Group I and 210,000 t/y of Group II – are consumed by blenders in mainland China.

Taiwans finished lubricant market is small, estimated at 400,000 t/y and valued at U.S. $1 billion, Liu said. By volume, 72 percent of the total is industrial lubricants, 18 percent is consumer automotive and 10 percent is commercial automotive. By value, however, industrial lubricants account for just 11 percent of the market. Consumer automotive lubes account for 64 percent by value, and commercial automotive for the remaining 25 percent.

Looking at the decade ahead, Liu forecasts a stable market, with a slight volume decline. Growing use of synthetic passenger car motor oils is extending drain intervals, she noted, and Taiwans growing high-tech industries are less oil consuming.

Competition in Taiwans finished lubricants market is intense. The domestic majors, CPC and Formosa, together have about 35 percent of the market by volume. Local blenders have 40 percent, mainly industrial lubricants and mainstream-to-lower tier products. Foreign players have 25 percent, with sales handled mainly by distributors.

Newcomers face high entry barriers to Taiwans finished lubricants market, Liu concluded. The market is small, existing players are well established, and growth prospects are low.