India Shifting To Better Base Oils

MUMBAI, India - Growing demand for high-performance lubricants is causing a major shift toward API Group II and III base stocks in India, the worlds third-largest finished lube market.

The trend is most prevalent in product segments such as motor cycle oils and passenger car motor oils, according to an analyst from United States-based consultancy Kline & Co.

In a presentation during the ICIS Indian Base Oils and Lubricants Conference held here last month, Anuj Kumar, a project manager in Klines energy practice, told attendees that process oil is the largest product category, accounting for slightly more than 25 percent in 2014, followed by heavy-duty motor oil. Consumer product segments such as PCMO and MCO are registering robust growth, compared to commercial vehicle oils and industrial lubricants.

The finished lubricants market in India is highly competitive, Kline found, with national oil companies Indian Oil Corp. Ltd., Hindustan Petroleum Corp. Ltd. and Bharat Petroleum Corp. Ltd. occupying the major share. Other significant market players include domestic suppliers such as Apar Industries, Savita Chemicals, Raj Petro Specialities and Gulf Oil Lubricants India Ltd. and international players such as BP, Shell, Valvoline and others.

The overall lubricant base stock capacity in India was around 1.2 million tons in 2014, whereas the demand was estimated to be around 3.2 to 3.3 million tons, Kumar said. India imports large quantities of base oils from South Korea, the United States, Singapore, U.A.E., Russia, Bahrain and other countries. South Korea accounted for over 50 percent of the total base oil imports in India in 2014. The domestic production of lubricants base stock is largely dominated by companies such as Hindustan Petroleum Corp., Indian Oil Corp., Chennai Petroleum Corp., and Bharat Petroleum Corp. Group I accounts for the major share of approximately 60 percent of domestic production of base oils in India.

Kumar identified several factors that suggest India will continue to need large volumes of foreign base oils.

Strong economic growth potential, rapid shifts toward high quality products and an expanding deficit in domestic base stock supply are major factors that make India an attractive destination for base oil market players, he said. The rapidly increasing number of passenger vehicles on road and growing investments in industrial and infrastructure activities are expected to drive the demand for lubricants in the country.

The change in demand dynamics in product segments such as PCMO and MCO is largely influenced by the stricter fuel efficiency and emission regulations in the country. Kline expects the shift towards lighter-viscosity engine oils in PCMO to shrink the volume of SAE 20W, which is currently the most popular viscosity grade. SAE 15W is projected to emerge as the largest product category in Indias PCMO segment by 2019. The other viscosity grades - such as SAE 0W, 5W and 10W - are expected to gain some share from 20W by 2019. In HDMOs, 15W-40 viscosity grade is expected to remain the dominant type over the next five years.

Indias domestic base stock production met less than 50 percent of the countrys demand in 2014, compared to 70 percent in 2008, Kline found. The country does not have any major base stock capacity additions planned in the near future. Kline projects the demand for API Group III base oils to register the highest growth rate of 6 percent to 7 percent annually between 2014 and 2019. Demand for API Group II base oils is projected to grow in the range of 2 percent to 3 percent during that 2014-2019 period.

These factors present ample opportunities for lubricant base stock marketers in India. However, Kline noted that depreciating currency rate and falling crude oil prices are the base stock industrys major concerns.