This year was a busy one for the lubricant industry in Europe, the Middle East and Africa with a high number of mergers and acquisitions and facilities investments. On top of that, 2018 also featured important trends in base oil trading patterns, along with the resumption of U.S. sanctions against Iranian exports of oil products – including base oils – and the delay of a major upgrade in European engine oil specifications.
Mergers and Acquisitions
The industry saw an unusually large volume of M&A activity this year, and no company was involved in more deals than specialty chemical supplier Italmatch, which completed its acquisition of phosphonates corrosion inhibitors Jiayou Chemical in March and then agreed in May to acquire the metalworking fluid additives business of Afton Chemical. Italmatch had completed three other acquisitions since 2017. Then in July the Genoa, Italy-based company unveiled a deal to be acquired by Bain Capital Private Equity.
There were plenty of other deals in 2018. ExxonMobil agreed to sell its Augusta, Italy, fuels refinery – which includes Europes largest base oil plant – to Algerian national oil company Sonatrach. Swiss mining company Glencore won a protracted battle against Sinopec to acquire 75 percent of Chevrons downstream assets in South Africa and all of its business in Botswana. German lubricant manufacturer Fuchs Petrolub purchased glass container lubricant maker VDV Lubricants but sold its stake in the Swiss joint venture Motorex. Two United Arab Emirates blenders, Pacific Lubricants and Mag Lube, were acquired by Maximus International Ltd. and GP Global, respectively.
Saudi Arabian chemical producer Sabic bought a stake in Swiss chemical producer Clariant, a supplier of lubricant additives. Brazilian base oil and lubricant supplier Moove acquired Lubrigroupo and TTA Lubrifiants, lube distributors in Portugal and France, respectively. Vivo bought Engen fuel stations in Africa, and U.S. investment firms bought stakes in German rerefiner Puraglobe.
The industry was also busy adding – or planning to add – capacity to base oil plants, lubricant blending plants and chemical additive factories. Luberef opened a Group II upgrade of its base oil plant in Yanbual Bahr, Saudi Arabia. Uzbekneftegaz announced plans to add Group II and Group III capacity to its Group I plant in Fergana, Uzbekistan.
There were several developments in Russia, where Total opened a 40,000 ton per year blend plant in October, Obninskorgsintezopened a 25,000 t/y blend plant in May and Tatneft reopened a dormant polyalphaolefin plant in February.
Base Oil Trends
According to numerous industry insiders, the European lubricant market made a strong shift toward Group II base stocks in 2019. Going back to the early 2000s, Europe was much slower than North America and even the Asia-Pacific region to begin using Group II, opting to use blends of Group III and Group I instead of Group II stocks. But growing numbers of finished lube blenders are now switching from Group I to Group II oils, partly a result of progress made by Chevron in developing a market in Europe, but also in response to more supply from other sources such as Luberef, which began producing Group II at its base oil plant in Yanbual Bahr in early 2018. In addition, ExxonMobil shipped large significant volumes of Group II to Europe from its plant in Singapore this year to build a customer base in preparation for the opening of the regions first large Group II plant, which is scheduled to open in Rotterdam during the first quarter of 2019.
The Middle East and Africa each also underwent their own base oil trends based on evolving supply-demand dynamics. New Middle Eastern Group III suppliers Adnoc and Bahrain Petroleum Co. disrupted Group III markets with their region and elsewhere by stoking competition. Both refiners offered Group III oils with only partial slates of finished lubricant approvals but managed to gain customer bases in part by cutting prices.
Lube blenders throughout Africa reverted to Group I to base stocks in 2018 after temporarily switching to Group II, indicating that Group I still has breath on the continent.
Iranian base oil exports had not long returned to normal activity when the United States announced that it was pulling out a nuclear deal with Iran and several other nations and that it would reinstitute economic sanctions against the Islamic Republic, including bans on exports of base oils and other oil products. Observers speculated that Iranian traders would result to clandestine shipments, but the impact has so far been blunted by the U.S. granting waivers to several of Irans trading partners.
Russia was also hit by additional U.S. sanctions, but Russian lubricant suppliers appeared to benefit by a government policy encouraging domestic companies and consumers to switch to domestic products as replacement for imports.
The European Automobile Manufacturers Association had been scheduled to approve an upgrade to its light- and heavy-duty engine oil sequences by the end of the year, but adoption of ACEA 2018 was delayed at the last minute due to the fact that the organizations counterparts in North America were still working on engine tests that were to be included in the European specifications. Observers said it was too soon to say when ACEA 2018 would be approved.