Asia made some more splash in the global base oil market in 2019, while also asserting some control in the area of lubricant standards.
Refiners in the region opened new base oil plants and completed several expansions – introducing capacity that will make waves in a market already has a supply glut. The year also saw adoption of finished lube specifications in Japan and Indonesia, along with work toward completing another in China, as governments and industry strove to address the needs of their own markets.
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Meanwhile, mergers and other developments caused continued evolution in the line-up of businesses supplying markets.
Base Oil Capacity Additions, Upgrades
Asia-Pacific is already the worlds leading region for base stock capacity, and refiners finished a slew of additional projects in 2019, undeterred by a growing global surplus. Several new plants and expansions were completed in China, part of a two-year dump that is the largest release ever by one country in such a short period of time. Shida Changsheng Energy Technology Co., Feitian Petrochemical, Qingyuan and Luan Group were among the companies taking part. In addition, ExxonMobil completed an API Group II upgrade and expansion of one of its Singapore base oil plants.
Asia-Pacific has capacity to make more base stocks than it needs, and by the end of the year output displaced by the opening of these projects was finding its way to markets like Western Europe where it helped exert downward pressure on prices that are already squeezed.
And Asian refiners appear far from finished. Indian Oil and Bharat Petroleum both announced plans to upgrade or expand plants in India. Malaysias Petronas said it plans to double its Group III supply within four years, although the company posed the possibility of undertaking a project in some other region. G-TiBase Oil Technology, a joint venture between Yitai Coal and Jiyang Petrochemical Group, said it will build a coal-to-liquids base oil plant in China.
Standards and Specifications
Markets around the world have long followed engine oil performance specifications developed in the United States, Europe and Japan – the worlds biggest auto manufacturing markets. Japanese industry developed JASO standards for heavy-duty engine oils and participated in the development of ILSAC specs for passenger car oils in North America, while the industries in the United States and Europe developed both kinds.
In April, however, the Japanese Automotive Standards Organization adopted its first passenger car motor oil spec, GLV-1, which defined performance for ultra-low-viscosity 0W-12 and 0W-8 passenger car motor oils. Japanese original equipment manufacturers recommend those grades for some cars models and decided to develop their own spec because ILSAC GF-6, which was adopted later in the year, does not include those grades.
n September Indonesia finally launched its SNI lubricants standard aimed at supporting lube blending operations within the country. First proposed in 2005, the standard applies to automotive lubes and supports local businesses by subjecting imports to tests that locally produced products do not have to pass and requiring foreign firms to establish local representation..
SNI was contested by the Association of Indonesian Lubricants Distributors, Importers and Producers, who submitted an application to the countrys Supreme Court in February requesting judicial review of the validity of the standard. The association argued the existing registered lubricant number already controlled the quality of lubricants in Indonesia, making the new regulation unnecessary.
Chinese lubricant marketers and truck manufacturers continue to develop a heavy-duty engine oil specification aimed at meeting the performance needs of Chinese models.
Mergers and Acquisitions
Independent lubricants blender Fuchs continued its inroads into Asia-Pacific via an acquisition in Australia and the opening of a new blending plant in China.
The German company announced in March an agreement to acquire independent lubricant blender Nulon Products Australia, an expansion into the competitive retail market for automotive lubes down under. In April Fuchs opened a new lubricants blending plant in Wujiang in Chinas Jiangsu province. The plant has 100,000 metric tons per year production capacity in its first phase, almost double that of the Shanghai plant that it will replace.
Just this month Chevron said it will end an agreement to license use of the Caltex brand name to Caltex Australia, a move that will lead the latter company to switch to an existing brand, Amol. (See article in this issue.)
In May, Petronas Chemicals Group Bhd of Malaysia agreed to acquire Netherlands-based lube oil additive manufacturer BRB International B.V.s holding company for 163 million (U.S. $182 million) in cash
Asia Base Oil Supply and Demand
Suppliers and end-users were bracing for many challenges at the start of 2019, with lengthening supply and flat demand, coupled with feedstock volatility and geopolitical tensions largely molding market fundamentals throughout the year.
Availability of most grades grew during the last couple of months of 2018 – a condition that is fairly common at the end of any given year – but caused further concern in the face of additional global capacity slated to come on stream in Europe, China and Singapore during the first half of 2019.
However, given the persistent supply glut and ensuing downward pressure on pricing, a couple of the scheduled start-ups in China were delayed until the second half of the year.
While base oil demand was predicted to stay flat or show a small increase in 2019, India, Indonesia and Thailand continued to be targets for expanded business opportunities as the automotive and motorcycle segments in these countries were expected to see steady growth in the next five years, accompanied by a move towards higher quality lubricants.
India continued to import base oils heavily as well, as demand outstripped local production and this situation was likely to continue in the foreseeable future. Group II supplies from Singapore and Group II and III oils from South Korea, which had dominated the market over the last few years, have been partly displaced by Middle East product, which was offered at competitive prices. The situation in India was described as a tug of war between the various suppliers, and the market was saturated with product despite the fact that Iranian Group I imports dried up due to the U.S. sanctions imposed on the countrys crude oil exports.
Similarly, the start-up of a number of new domestic base oil plants in China displaced regular supplies coming in from South Korea, Taiwan, Singapore and the Middle East.
Base Oil Pricing in Asia
In terms of base stock pricing, steep crude oil values brought about by geopolitical tensions and production cuts by OPEC+ members resulted in higher base oil spot indications in the first quarter of the year, although the markups were tempered by the ample availability of product.
The upward price pressure was present until mid-May, when sliding crude oil and feedstock prices, together with oversupply conditions, started to weigh on spot base oil values once again.
The inception of additional Group II product from the expanded ExxonMobil plant in Singapore in June also had a dampening effect on price indications. Additionally, ExxonMobil remained on track for a project to further expand Group II capacity in Singapore by 2023.
A spike in crude oil prices in mid-September as a consequence of a drone attack on Saudi Arabian crude oil production facilities ensued in a number of base oil price increase announcements. However, the increase initiatives were met with buyer resistance because of soft market conditions.
Lackluster demand from the automotive and industrial segments, driven by economic uncertainties emerging from the unresolved U.S.-China trade dispute, against plentiful availability of most grades continued to afflict base oil prices. A number of suppliers resorted to trimming operating rates in order to achieve more balanced supply-demand positions amid thinning margins, or produced more transportation fuel given better returns.
Gabriela Wheeler contributed to this story.