MUMBAI, India – New API Group II and III sources will continue challenging the placement of Asian supplies in export markets and may speed up the adoption of lower viscosity finished lubricants throughout the region, said an industry consultant at a convention here last week.
With additional Group III units sprouting up worldwide into an already oversupplied global market, the Asia-Pacific region will likely see swift movement toward higher-quality lubricants over the next 10 years, said Anuj Kumar of United States-based consultancy Kline & Co. at the first Asia, Middle East and Africa Base Oil, Lubricant and Wax Conference on July 13.
Kumar, a project manager for Klines energy practice, said that total base stocks capacity in the region is around 24.4 million tons per year, with Group II hovering at around 50 percent of that volume, Group I at about 25 percent and the rest composed of a sizable Group III supply base and some naphthenic capacity in China and Japan.
But in terms of base oil needed for finished lubricants demand in Asia-Pacific, Group I accounts for the largest share followed by Group II, Group III and others.
Group I base stocks are in deficit in the Asia-Pacific due to high demand. The region meets its requirement through imports from the Middle East, Russia and parts of Europe. The deficit has catalyzed formulators switch to Group II base stocks, Kumar said, which are in surplus in the region along with Group III supply. The substitution of Group II base stocks in formulations that traditionally use Group I is particularly evident in transformer oils and white oil markets, he noted.
Asias Group I demand is likely to witness an increasingly sharp decline going forward because of the natural progression of higher-quality lubricants demand and the prevalence of Group II in the region. He said Group II and Group III will grow quite fast in the region, while naphthenics will witness moderate growth and remain in deficit for the foreseeable future.
Some base stock units in the Asia-Pacific region are expected to increase capacity in the next 10 years, Kumar said at the conference, which was jointly organized by Petrosils Base Oil Report and consultancy Rex Fuels Management. Around 700,000 tons of Group II is planned in China while ExxonMobil plans to expand its Group II capacity in Singapore and Pertamina plans to add new capacity in Indonesia.
In the past five years, he noted, the region has seen a rapid shift towards lower viscosity grade passenger car motor oils – especially in the 5Ws and somewhat in the 0Ws – due to original equipment manufacturers recommendations. Even the catching-up economies are slowly moving on to grades like 5Ws and 10Ws, Kumar said.
The swift transition to better-quality lubricants is also evident in the heavy-duty motor oils category, Kumar continued. The fastest-growing grade in the segment is 15W due to OEMs in China, India and other markets recommending, in particular, 15W-40s.
Key markets in the Asia-Pacific region are China, India and Japan, but there are a few other important growing markets such as Thailand, Indonesia and Malaysia, which hold great promise for future growth, he continued.
However, the finished lubricant demand growth rate in Asia-Pacific will likely ease in coming years, due in no small part to Chinas slowing economy and the trend toward longer drain intervals, which is not confined to automotive motor oils. There is growing incidence of high-quality lubricants being used in segments like mining and steel, which essentially reduces the need to change oils, he added.
Kumar said the economic growth rate in China, a leading lubricant market, is expected to show a very sharp decline in the next couple of years due to cooling-off of its economy, while demand in Japan may mostly remain flat. India and Indonesia remain sweet spots in terms of gross domestic demand growth.
Lubricant consumption in Asia-Pacific is expected to grow at a compound annual rate of about 1 percent from 2016 to 2026, a marked slowdown from rates observed in the past.