BASE OILS MARKET IN CHINA

KONG JINYUAN

PetroChina Planning & Engineering Institute

LONDON 2010.2
 Agenda

• Demand & Supply

• Analysis of 2009 Market

• Trend and Forecast

2
 A Policy-Driven, Multispeed Recovery

World Economic Outlook

10

GDP Growth % 6

-2

-4
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
World output 4.7 2.21 2.82 3.63 4.93 4.45 5.09 5.2 3 -0.8 3.9
Advanced econnomies 3.97 1.24 1.62 1.91 3.19 2.56 2.99 2.7 0.5 -3.2 2.1
Emerging and developing 5.93 3.8 4.75 6.27 7.5 7.13 7.92 8.3 6.1 2.1 6
economies (Data from IMF Jan, 2010)

Global production and trade bounced back in the second half on

2009.

In 2010, world output is expected to rise by 3.9%, and which of
the emerging and developing economies is expected to rise by 6%.
3
 Global Consumption of Lube (mnt)

(without marine oils)

38
37.2
36.9
37 36.4 36.5
36.1 36.3
36 35.6 35.7 35.4
35

34

33
32
32

31

30
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

(Data from Fuchs)

Global lubricant demand suffered a painful double-digit decline, in the range

of 12 percent to 13 percent worldwide.

Global lubricants demand in 2009 shriveled to only 32 million metric tons

(without marine oils), a volume similar to that of 1970.
4
 Chinese Economy Keeps developing

The driving power of economy from investment is strong and will continue.

The GDP Growth of China is expected to be 10% in 2010 and 9.7% in 2011 by IMF.

Chian GDP Growth

14

12
9.3
10 11.6 11.9
8
9.1 10 10.1 10.4 10
8.3 8.7
6

0
2001年 2002年 2003年 2004年 2005年 2006年 2007年 2008年 2009年 2010年

5
 Lube Demand in China
700 14

600 12.4% 12
Domestic Consumption
500 10

400 6.1% 8

%
5.9%
300 5.9% 6
4.4% 5.8%
200 4.8% 2.7% 4
3.2%
100 2.8% 2

0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Consumption in 10kt Variance %

In 2008, the domestic consumption is 5700,000 metric ton;

In 2009, which amounted over 6000,000 tons with high growth over 6%.

6
 Key Drive of China Lube Demand
7000 25%
22.5%
6000
17.7% 20%
17.9%
17.3%
5000 16.1%
civil car possession
17.0% 15%

growth %
4000
13.9%
13.1%
3000 12.0% 10%

2000

5%
1000

0 0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

civil car possession in 10k growth

The possession of civil car in China has kept up a double-digit

growth rate despite the global economic downturn.

The demand of engine oils is the key drive of high growth of lube
in 2009, especially the gasoline engine oils, which has growth rate
over 12%. 7
 Market Competition in 2009

Local ImportRecycled oils

blenders 4% CNPC
2% 26%
17%

MNCS SINOPEC
30% 21%

The share of every competitor is stable.

The government-owned corps are working at upgrading,
the proportion of total-loss-oils keeps decline.

8
 Base Oils Demand Configuration

Nap hthene Oils

19%

Group I Group II/III

66% 15%

The proportion of naphthene oils is 19%, higher than which

of globe . The output of tire and shoes of China are No.1 in
the world, so the demand of rubber processing oil is very high
while the naphthene oil are good choice.

Proportion of Group II/III is 15%, obviously lower than which
of globe, because the demand of top-tier is still low.
9
 Supply of Base Oils in China

600
CNPC&SINOPEC import Others
500

400
tk
01 300

200

100

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Supply of two government – owned corps. is stable at 3000,000 metric

tons.

Imported oils and other are more and more.

The others includes oils from CNOOC , local refineries, some are from
CNPC & SINOPEC, which always named un-standard oils or pale oils. 10
 Import oils raise rapidly

200 35.0%
180
30.0%
160
140 25.0%
120 20.0%
10kt

%
100
80 15.0%

60 10.0%
40
5.0%
20
0 0.0%
2000年 2001年 2002年 2003年 2004年 2005年 2006年 2007年 2008年 2009

quantity of import import-total baseoils ratio

Quantity of import oils raise from 450kt in 2000 Y to 1880kt in

2009 Y, the average yearly growth rate is over 17%.

Proportion of import to total base oils increase rapidly, from
12.0% in 2000Y to over 30% in 2009Y .
11
 Source of Import Base Oils-2009

Russia 12%
哈尔滨
Uzbekistan 4%
乌鲁木齐 长春
新 疆 维 吾 尔 自 治 区 沈阳
塔里木河 呼和浩特
北京
天津
银川 石家庄
太原 济南
西宁
兰州 郑州
西 藏 西安
藏 族 Korea and
自 治 上海
区
拉萨 重 武汉 合肥 南京 Japan37.3
成都 庆 杭州 %
南昌
长沙
贵阳 福州 台北
昆明
南宁 广州 Taiwan 3%
香港
澳门
海口

Singapore & Malaysia 35%

12
 Source of Import Base Oils

70
2007 2008 2009
60

50

t 40
k
0
1 30

20

10

A
a

ia
n
re

ia

an

ta n

s ia
re

pa

US

s
ss
o

iw

ay
Ko

ne
kis
ap

Ja

Ru

al
Ta

do
ng

be

M
In
Si

Uz

The oils from Russia an d Uzbekistan increase in 2009, and will be
more in 2010, which is always cheaper than other imported resource.

Group III oils from Malaysia is hot in 2009, the ETRO entered into
China market and are welcomed.
13
 Source of Import Base Oils
70 900

753 793 794 754 800

60 693
687 700
731
50
602 640 600
556
40 500

$/ton
10kt

30 400
365
300
20
200
10
100

0 0
e
re
a
pa
n ia an an SA a a
an
d
er
s
or s t w U si si
ap Ko Ja
Ru
s is
Ta
i ay ne ll
Ot
h
ing bek Mal ndo Ho
S Uz I
quantity price

The average price of total imported oils is 712$/t, which of

Uzbekistan is just half .
Although the oils from Japan and Taiwan is higher, which are
still welcomed in China Market. 14
 Agenda

• Demand & Supply

• Analysis to 2009 Market

• Trend and Forecast

15
 Development of Relevant Trades in China in 2009

output variance
Automobile 13.7 million 48.30%
motorcycle 17.7 million 12.80%
ship building 42.4 million load ton 47%
steel 565 million ton 13%
cement 1630 million ton 17.90%
synthetic rubber 2.76 million ton 8.70%

Base oils are used in many industry, and the relevant trades all have
increased by a wide margin, such as automobile, motorcycle, general
equipment ,ship building and construction.

The naphthene oils are always used in rubber processing, and the output
of synthetic rubber and tire all increased.

16
 Demand of base oils in 2009

Face the financial crisis, Chinese government has taken a series of effective
measures, , spurs the domestic demand ,have guaranteed steady growth of
national economy.

Therefore, the total consumption of lube in China is up to 6100,000 metric
tons, increased by 6.0% with the same period of last year, although which of
globe declined over 10%.

The enormous demand attracts numerous resources to flow into the
Chinese market.

The quantity of imported base oils is up to 1880,000 metric tons, the net
import volume has increase by 47% .

17
 Monthly Import Base oils

8500
8000
7500

The quantity of monthly
no 7000 import oils are influenced by
t/
na 6500
uY
price gap between imported oils
6000
BM and domestic oils.
R 5500
5000

During the second quarter,
4500
4000 the CIF price of imported oils is
1 2 3 4 5 6 7 8 9 10 11 12 obviously lower than domestic
Singapore oils(CIF) domestic oils
oils, so import volume kept
Quantity of Import Oils Monthly
relatively high-level.
30

25
In the last two month in 2009,

20 the price of petroleum increased
t
k15
0
1
over 70$/b, traders are
10 interested again in abroad oils.
5

0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2009 2008 2007

18
 Agenda

• Demand & Supply

• Analysis to 2009 Market

• Trend and Forecast

19
 New Capacities On the Way

Capacity
Location Time Producer API Group
10kt/a

Yanshan 2010-2011 Sinopec II/III 45

Huizhou 2010-20111 CNOOC II/III 40

Dalian 2011-2012 CNPC II/III 30

20
 Outlook of Base oils Supply & Demand(10kt)

2009 2010 2015

Demand of Lube 610 646 785
Consumption of Base Oils 560 590 713
Supply of Base Oils
CNPC 160 170 250
Sinopec 130 130 165
CNOOC 30 40 70
Total 320 340 485
Gap 240 250 228

The demand of lube in China has kept up a higher growth

rate , although which of globe swings.

The gap will be met by import oils and local refineries.

21
 Forecast of Base Oil Demand in 2010

China State Information Center released that in 2010 China GDP is

expected to increase 8.5%, while the opining of IMF is 10%. Whatever,
economy of China will keep good status in the coming year.

Production and selling of automobile will also over 10% growth rate, the
relevant industries about base oils are all expected to be good. The
demand of lube will keep rise, and so will the base oils.

CNPC & Sinopec will provide nearly 3000,000 tons base oils in 2010,
CNOOC may will provide 400,000 tons, whole amount of them can not meet
the demand in 2010.

Import base oils will play a more and more important role, before the new
devices come into operation.

22
 Summit

China is one of the most important market of globe, where are also the
focus of base oil competition.

The demand of base oils in China will keep rise while the demand of globe
decline, and in long period, which will maintain on relevant rapid growth.

The import oils are always the necessary supplement, and in the coming
years, the volume of imported oils is expected to nearly 2000,000 metric
tons.

CNPC will strength the work of improving the quality and efficiency of base
oils production and upgrade our lube product.

23
Happy New Year !

24