The API Group I sector has weathered the outbreak quite well, experts agreed, and even though demand did experience a dip at the beginning, it recovered quite quickly because industrial activity resumed relatively fast compared to other sectors of the economy. Once the majority of countries emerged from lockdowns, manufacturing operations revived, particularly in China, increasing the use of industrial lubricants and therefore demand for Group I.

Group I requirements from the marine and heavy commercial vehicle sectors were also healthy because the transportation of goods never stopped, and in fact, the need to ship products increased as countries stocked up on medical and protective equipment. As populations remained indoors, online orders soared, speakers noted, pulling in additional transportation and delivery resources.

Speaking at the conference, Michael Connolly, senior consultant for ICIS Analytics, seemed optimistic that Group I grades would continue to do well in the coming months. “Group I is heavily impacted by industrial output, which is predicted to predominantly return in 2020,” he explained. “It’s obviously not going to return to 100%, but a lot of the industry is [considered] essential industry; it’s the workforces that allow economies to continue.”

Asian demand for Group II base oils also declined during the first and second quarters, reflecting conditions in the automotive industry. “In Asia, there was a 25% reduction in road fuels demand,” in the first quarter,” Connolly said, adding that fuel demand could be used as a proxy for motor oil demand levels.

A majority of Asian base oil producers dialed back operating rates to avoid a build-up of inventories at a time when demand prospects were rather dim.

By June, however, demand for Group II started to take off, soon leading to a tightening of global supplies as producers did not have extra availability.

In India, demand for Group II base oils flourished as the country reemerged from lockdowns and related measures and resumed transportation, manufacturing and other business activities. It saw another uptick in August, at the end of the monsoon season and as manufacturers prepared for the traditional festival period in the fourth quarter.

Regular sources of Group II spot cargoes such as Taiwan, South Korea and the United States experienced a combination of planned and unplanned refinery outages in the third quarter that largely contributed to a regional tightening of supply.

The Group III segment was probably most heavily affected by the pandemic, as its main downstream draw comes from the manufacture of passenger car lubricants. The lockdowns brought about a significant decline in car sales and distances driven in the second and third quarters, and consequently, on engine oil demand.

In China, automobile sales plunged by a staggering 82% in February after dealerships and other businesses were closed to contain the virus outbreak, according to data from the China Association of Automobile Manufacturers. China’s auto sales rose 2% in June compared to a year earlier, but this was down from May’s 7% gain following the reopening of the economy.

The Japanese auto market worsened in May. Sales sank 45% to 218,285 vehicles, compared with a 29% decline for April, according to data gathered by Nikkei Asia from the Japan Automobile Dealers Association and the Japan Light Motor Vehicle and Motorcycle Association.

The demand destruction was similarly crippling in all regions. Harji Gill, CEO of Penthol USA, a distributor of Group III base oils for United Arab Emirates-based Abu Dhabi National Oil Co., admitted that demand for Group III base oils plummeted in the second quarter. “In April, [base oil] sales were almost non-existent, we saw levels at around 15% of normal demand, but then it went up to 30 to 40% in May, and it increased steadily in June, July and August. The market picked up so fast that it was hard to keep up, especially when you are dealing with a delay in imports and transportation,” he explained. Several Middle Eastern ports experienced massive congestions during the peak of the pandemic.

The Middle East is one of the main Group III exporting regions, and large amounts of exports move to Asia every month. However, year-on-year total base oil exports from the Middle East fell by about 25 percent during the first half of 2020, compared to 2019 trade levels, according to Connolly. By comparison, the global average of base oil trade declined by about 16 percent year-on-year during the same period.

South Korean Group III producers also witnessed a significant drop in demand during the second quarter, but by May, buying appetite from China, India and other countries had started to improve, with July shipments of South Korean base oils registering six-month highs, according to reports.

Anckur Sachdev, CEO of specialty oils producer Kent Chemicals Pvt. Ltd., and Eric Kim, vice president of Singapore-based petroleum products distributor SBC Petrochemical Pte. Ltd., said that India, Vietnam, Indonesia, Malaysia and Thailand are showing positive growth and appear most likely to emerge strongest from the pandemic. They participated in one of the event’s roundtables.

They explained that South Korea and Japan were strong for years and were able to keep the pandemic fairly under control since the beginning, so the effects on their base oil markets were not as earth-shattering, although plants there did have to reduce operating rates like everyone else. Singapore was also almost back to normal, they added.

China was in the best position overall, speakers agreed, as the country had an advantage in coming out of the pandemic earlier than others because it had been hit by it first.

“We have seen a recovery in China, and according to the latest figures, they are above historic figures, effectively catching up,” Connolly explained. “But we’ll see how that plays out throughout the year and how that recovery continues.”

Connolly said that variations in the rate of cases regionally will continue to alter trade flows and influence regional competitiveness.

“Nobody knows when the COVID-19 pandemic will come under control, and this creates some challenges for planning,” Connolly explained. ”So understanding how and what we expect for the near future and the assumptions under that is going to be important for all areas of the market.”

Kim agreed, adding that “each segment, be it Group I, II or III, will have its own future as long as we overcome this pandemic as soon as possible.”