Base stock prices in India are likely to come under pressure in the coming months as greater availability from several nearby sources boost potential supply for the worlds third-largest lubricant market.
The global market is oversupplied, and recent capacity additions have further exacerbated surpluses of API Group II and III oils. Abu Dhabi National Oil Co. (Adnoc) recently opened a plant in Ruwais, United Arab Emirates, and Saudi Aramco Base Oil Co. (Luberef) completed an expansion in Jeddah, Saudi Arabia.
Adnocs plant has capacity to make 500,000 metric tons per year of Group III and 100,000 t/y of Group II, while Luberefs project at Yanbual Bahr, Saudi Arabia, will bring 700,000 t/y of Group II.
Anuj Kumar, a project manager in consultancy Kline & Co.s energy practice, said these developments will ease base oil supply to the Indian market.Owing to the geographical proximity of the Indian market and the growing appetite [there] for Group II and III base stocks, it becomes a natural market for this new production, Kumar said during an interview.
India is one of the worlds largest base oil importers as the country produces relatively little base stocks compared to volume it consumes. India has four base oil plants with combined capacity to make 1.2 million t/y, but their actual output in 2015 was just 900,000 t/y. As a result, India imported 2.5 million tons of base stocks last year from countries including South Korea, the U.A.E., Singapore and the United States.
Ashish Navalkar, deputy general manager for supply chain, at Gulf Oil Lubricants India Ltd., said new capacity on the Arabian Peninsula should ease pressure on supplies and prices.
Navalkar noted that the market is yet to reflect the impact of new refineries, as Adnoc has just started to supply its output commercially with a couple trial shipments to India. It is still time for them to stabilize, and no one is sure how it will go forward, he added.
He added that commercial supplies from Luberefs Group II plant are expected by the end of this year, and that it may take some time to understand their pricing policy.
Traffic of base oil shipments from Iran to India eased after the U.S. lifted sanctions against the country in January. The easing of economic sanctions on Iran has also made it easier for domestic base oil producers to export their products.Industry sources say Iranian base oils were reaching India while sanctions were in place but usually after transshipment in the U.A.E.
However, Navalkar said that quality and quantity are always an issue with regards to Iran and that suppliers have started asking for higher prices after sanctions were lifted. The feeling is if base oils from other regions can fetch higher prices, why not Iranian base stocks? he added.
Amin Rayani, managing director & CEO of Panama Petrochem Ltd., agreed that there has been no impact on prices yet but that some impact is expected going forward.
Trade executives agreed that competition is set to increase among base stock suppliers as they vie for sales to the lubricant market, which is dominated by national oil companies Indian Oil Corp. Ltd., Hindustan Petroleum Corp. Ltd. and Bharat Petroleum Corp. Ltd., along with Castrol India.
Supply is more than whatever demand India has today. Thats the key, said Ram Avasthi, senior vice president for materials at Apar Industries Ltd., a manufacturer of electrical transformers and transformer oils, along with lubricants. He said suppliers will have to reduce prices if they want to sell to always cost-conscious Indian buyers.
According to Kline estimates, India consumed 2.3 million tons of lubricants in 2015, an increase of less than 1 percent from the previous year.
Avasthi, however, noted that theres always instability in the quality of the product from any new refinery, and some buyers may exercise caution in tapping new sources.
Klines Kumar stated that Indian suppliers could also face some heat from this increased competition. Since they have base stock facilities in the country, they save upon the logistic costs, he noted. Hence, they will have some advantage in the sense that they can bear price reductions, he noted.