Excess Group II/III basestock production will continue to challenge Group I basestock demand. Planned naphthenic capacities are adding to the challenge for Group I basestocks. Group II is becoming the new Group I, the mainstay of lubricant formulations; Group II suppliers are squeezing their margins to make inroads into Group I market, according to a report from consultancy Kline & Co.
During a webinar covering the report on Wednesday September 21, 2016, Anug Kumar, Project Manager, Kline's Energy/Petroleum Practice, discussed the above from Kline's study Global Lubricant Basestocks: Market Analysis and Opportunities.
The study covers all major lubricant basestock categories including Group I, II/II+, III/III+, Naphthenic, Polyalphaolefins (PAO), and other basestocks, although the focus of the presentation is on Group I, II/II+ and III/III+.
This report has three modules: (1) Supply/Demand Analysis A comprehensive analysis of supply/demand for various basestocks across various regions and an interactive excel based demand model for analyzing current and future supply/demand situations, (2) Price Forecast A robust model that forecasts prices for API Group I, II/II+ and Group III basestocks in Northwest Europe (NWE), United States Gulf Coast (USGC), and NorthEast Asia(NEA) and a thorough and deep analysis of various factorscrude oil prices, basestock capacity utilization, arbitrage, spot market approximations among others, and (3) Manufacturing cost An assessment of manufacturing cost of Group I, Group II and Group III standard plants located in NWE, USGC and NEA.
Global finished lubricant demand is estimated at 39.4 MT in 2015, essentially with no growth over 2014, said Kumar. Globally, synthetic and semi-synthetic lubricants account for close to 13% of total lubricant demand.
The global demand for lubricant basestocks is 36.0 million tons of which about 3.0 million tons are used to blend synthetic and semi-synthetic lubricants. Of that 3.0 million tons, Group III/III+ accounts for greater than 50% of semi-synthetic and synthetic lubricants. Group I remains the largest portion of the total 36.0 million tons at just under 50%, with Group II second.
Supply of high performance basestocks has increased tremendously in the last five to 10 years. In the last five years, the share of Group II/III in overall supply has grown sharply. Declining technical demand and competition from Group II/III basestocks have impacted the global Group I supply.
At the global level, there is a surplus of Group II/II+ and Group III/III+ basestocks, which substitutes Group I from overlapping applications. The supply-demand balance picture hides the growing shortage of high viscosity basestocks, and in particular bright stock said Kumar.
Globally, Group III/III+ basestocks will enjoy the strongest demand growth; Group I basestocks will continue to decline, but the capacity addition still doesnt seem to slowdown with plans to add about 7.5 million tons of basestock capacity.
APAC will loose its tag of Group III hub as new supply emerges in other parts of the world, declining from 56% to 43% of the total production.
Group III basestocks continued to enjoy the highest margins among the three basestocks, with Group II the least, just slightly less than Group I.
Kumar concluded by stating that the market needs to find ways to cope up with the excess supply as a result of capacity rationalizations, reduced operating rates, shelving of plans. The excess GroupII/III basestock production will continue to challenge Group I. Planned naphthenic capacities add to the challenge for Group I basestocks.
Kumar added that Group II is becoming the new Group I, the mainstay of lubricant formulations. Group II suppliers are squeezing their margins to make inroads into Group I market. However, Group I will continue to remain in demand due to solubility considerations, viscosity considerations, inertia among blenders, and continued demand for obsolete specs in some parts of the world, as well as associated high value byproducts.
