CAPE TOWN, South Africa – Not long ago, lubricant blenders in South Africa had begun shifting from API Group I to Group II base stocks. Now a number of them are switching back to Group I, industry insiders told a meeting here last week.
Attendees at the ICIS Base Oils & Lubricants Conference said blenders are reacting to improved availability and more favorable pricing for Group I oils. Some industry players added, however, that Group II may still make a comeback.
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Speaking on the sidelines of the conference, Umongo Petroleum CEO Boston Moonsamy told Lube Report that Group I accounts for between 65 and 70 percent of base oil demand in South Africa, with Group II accounting for nearly all of the remainder.
Group I is still very strong in our market, added Cliff Classen, CEO of base oil distributor Orbichem South Africa, a unit of Umongo. Group I has actually been one of the surprise performers in our market. He claimed that lubricant blenders that previously adopted Group II have moved back to working with Group I oils.
Group II base stocks have some characteristics – such as higher viscosity index, higher levels of saturates and lower sulfur levels – that result in them often being able to command a price premium over Group I stocks. Over the past decade and a half, however, there have been numerous times when Group II prices sank below Group I values, often at times of Group II surpluses.
Patrick Swan, principal at ASWAN Consulting, said those ebbs and flows of the market have a major influence on the base oil procurement decisions of many blenders.
Moonsamy agreed. Independents switch between Group I and Group II based on availability and pricing, while the multinationals stay in Group I, but most of them have products blended in Group II.
The South African economy – which has been in a recession – also plays a role.
Many stakeholders believe that base oil demand in South Africa still will eventually shift toward Group II oils. Classen said the next big shift towards Group II will be when multinational oil companies move most of their products away from Group I to Group II.
Swan suggested that Group II prices will probably continue tempting blenders to replace Group I stocks. We will see a growth in Group II from everyone because the cost of Group II is coming down, he said.