China expands Group III base oil output

Market: Oil products
07/09/22

China is boosting its domestic Group III production to meet a rise in demand for premium-grade base oils.

The increase in demand for higher-performance lubricants comes alongside the country's aim to transition to cleaner energy solutions, and reduce carbon emissions by adopting a higher usage of the China 6 standard. These standards are equivalent to, or in some aspects even more stringent, than the Euro 6 emissions standards.

The first phase of the China 6 standard for passenger cars, light-duty commercial vehicles and heavy-duty vehicles was implemented from January 2021, with the second phase to ensure all new vehicles in China meet the standard by July 2023.

China's base oil producers have mostly already increased their overall production of premium-grade base oils in recent years, following an announcement in 2016 for a nationwide adoption of the China 6 standard from the China 5 standard.

But the persistent oversupply of domestic Group II base oils in the country, coupled with fundamentally tighter domestic supplies of more premium-grade base oils, have contributed to the addition of new Group III base oil capacities in the country.

Hebei Feitian Petrochem has started production of Group III 2cst, 4cst and 6cst base oils at its new 250,000 t/yr hydrogeneration unit this month. The unit was previously supposed to only produce Group II base oils, but the persistent build-up of domestic Group II base oil supplies had prompted the producer to invest in the production of Group III base oils instead.

Hainan Handi Sunshine plans to start producing Group III base oil grades at its 400,000 t/yr base oils unit by the end of this year. The start-up of the unit has been delayed from the originally-planned third quarter of last year.

A wave of new Group III supplies came on line in 2019 and 2020. The new plants included Shanxi Lu'an's 350,000 t/yr Group III+ coal-to-liquids base oils unit, Hengli Petrochemical's Group III unit in Dalian China and Qinghe Petrochemical's Group III unit in Shandong China.

China has also been a large importer of Group II premium-grades and Group III base oils from South Korea and the Mideast Gulf. The country had imported a total of 2.13mn t of base oils last year. Some 37pc of the total volume imported last year was from South Korea, with 15pc of the total volume from the Mideast Gulf.

The availability of these new domestic supplies at competitive prices put pressure on rival domestic producers and overseas refiners alike.

China's Shanxi Lu'an recently priced its base oil supplies in the domestic market more competitively, at around Yn1,000/t ($143/t) lower than prices for imported Group III supplies.

Group III 4cst of Mideast Gulf origin was offered at Yn12,350/t ex-tank east China. Price offers for this grade were firm because of tighter spot availability.

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