China Sinopec to start Yanshan Group II base oil unit

China's state-controlled Sinopec plans to start operating a 250,000 t/yr Group II base oils unit in Beijing in July, encouraged by recent strong demand and firmer margins.

Construction of the unit was completed in 2013. But it was never switched on because of oversupply and weak margins at the time. Conditions remained unfavourable over the following years as a swathe of new plants in China began operations, and even as Sinopec took its Group I unit at the Yanshan refinery off line in 2015. That unit has not been restarted since.

But the trend has changed over the past year as base oil margins surged on tight global supply and strong demand. Domestic base oil prices in China rose sharply from late last year as buyers struggled to secure supplies that China is structurally short of, such as heavy-grade base oils.

Many producers have maximised production in recent months given high base oil margins. Domestic buyers have remained reliant on imports to cover their requirements for heavy grades like Group I bright stock and Group II heavy neutrals.

Two other domestic producers in China with combined capacity of 1mn t/yr also plan to carry out expansion work over the coming months.