China’s September base oils output falls

China’s base oils output extended its fall in September to its lowest in years even with a seasonal pick-up in demand.

Output of Group I, Group II and Group III base oils fell to less than 295,000t in September, OilChem China data showed.

The volume was down from around 340,000t the previous month and almost 50pc lower than year-earlier levels.

The drop in production every month this year cut total output to 3.30mn t in the first eight months of the year.

The volume was down more than 30pc from 4.91mn t during the same period last year and the lowest in years.

Base oils output slumped this year just after a surge in the country’s production capacity in recent years.

The trend left refinery operating rates in September at little more than 20pc of capacity for premium-grade base oils plants.

Base oils output fell even as demand got a seasonal boost at the end of the third quarter.

The strength of the demand was more muted than usual.

Signs of a pick-up in imports from sources like Taiwan suggested that overseas shipments were covering a larger portion of the demand.

Such a trend likely partly reflected lubricant formulation requirements.

The steep premium of regional base oils prices over China's domestic prices also fell sharply since early August. The move boosted the attraction of procuring more supplies from overseas.

A seasonal rise in domestic diesel demand in September also supported prices for the motor fuel at a steep premium to crude and an unusually narrow discount to Group II base oils.

The trend incentivized domestic refiners to boost diesel output instead of base oils, or to pour very-light grade base oils supplies back into the diesel pool.

Uncertainty about the timing and location of further lockdowns in China to stop any more Covid-19 outbreaks added to a reluctance to boost base oils output.