Economies around the world may be reopening from lockdowns imposed to prevent the spread of Covid-19, but base oil demand in many places remains sharply depressed and may not recover until late in the year, according to panelists at a webinar last week.
Speaking during a May 27 event organized by Lubes’n’Greases, Renkert Oil Vice President of Marketing and Sales Mike Burnett said the U.S. base oil and process oil supplier sees customers for both types of materials whose orders are still down by 30 to 60 percent. Those customers anticipate the market recovering, he said, but their expectations of when that will happen have been pushed back.
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“The interesting thing there is that every one of those customers have placed in forecasts that are pretty healthy, but they keep pushing them out,” he said. “I had a pretty strong forecast placed in for May. It was pushed out to June. I had a very strong forecast for June that has been pushed out to July, although the June forecast did increase over May. So we are seeing some production coming back with those users.”
Burnett added that he does not expect to see significant recovery in base oil and process oil demand until the fourth quarter. That opinion was shared by panel member Ray Masson, managing director of United Kingdom-based petroleum products trader Pumacrown Ltd., who described demand in some sectors of base oil markets in Europe as be being down by 80 percent.
“We will probably have small, incremental volumes lifted in the domestic [European] market over the next couple months as long as the Covid-19 activity remains where it is at the moment in places like Germany and Spain and Italy, and France, too,” Masson said. “But if there is any relenting on the Covid-19 and there’s any new spikes and secondary infections, then we could see a total lockdown situation again, and that could affect things really negatively.”
Matthew Chong, senior base oils editor for Asia at ICIS, indicated that the situation is similar for parts of that region but that China is ahead of that timeline. China was the first country to go into and emerge from lockdown, and Chong described five base oil plants that temporarily halted operations between February and May and a half dozen more that curtailed production by 20 to 30 percent during similar time frames.
Now domestic production has roughly returned to normal levels. “By the end of March to April, most refiners had already ramped up [base oil] production to 90 to 100 percent,” he said. “This is because of strong base oil margins after the crash in crude oil prices.”
The situation is significantly different in Asia’s second-biggest base oil market, India, which has imposed relatively tight controls on many types of businesses, including lubricant producers.
“Although some of the restrictions have been relaxed a few weeks ago, and their plants are allowed to run again, many plants face problems like a shortage of workers,” Chong said, explaining that some companies depend heavily on migrant workers. “You don’t really expect to see a pick up in the next months or so.”
Masson and Burnett said base oil demand in Europe and the Americas was already flagging before the pandemic. They also agreed that the timeline for recovery of base oil and process oil demand will depend on consumer purchasing and consumer confidence.
Lubes’n’Greases’ webinar, “Covid-19’s Impact on Base Oil Markets,” was recorded and can be viewed by following this link: https://www.youtube.com/watch?v=Wdr1bKLYoqg