Lubricant Supply Crisis Grows in Ukraine

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Lubricant Supply Crisis Grows in Ukraine
A mainline diesel locotomotive with a passenger train rides along a winding railway line in Melitopol, a city in Zaporizhzhia Oblast, located in southeastern Ukraine. © Zahnoi Alex / Shutterstock.com

Ukraine Railways is facing difficulties obtaining finished lubricants after some marketers failed to fulfill call-off contracts and other pre-qualified companies declined to place bids on the latest February tender, according to ProZorro, a Ukrainian public e-procurement system. Another reason is the dramatic drop of Russian base oil exports to the country.

A call-off contract is between a supplier and buyer for the provision of services, goods or works.

Ukraine, one of the largest European lubricant markets, still faces short base oil supplies. For some companies, such as the state railways, the situation was aggravated in February.

In the latest monthly tender to supply 360 metric tons of industrial lubricants, Ukraine Railways listed initial bids with much lower lubricant prices than the current and anticipated market prices. Many pre-qualified companies with previously sealed framework agreements did not participate in the bidding, while others offered lower prices than the initial bid, according to ProZorro.

Ukraine Railways repeated the tender on March 10 and is scheduled to announce the winners soon.

The country’s lubricant producers depend solely on base oil imports. Like many other countries in Europe, Ukraine is battling the effects of the pandemic-induced drop in fuels demand and slashed refinery rates, which in turn reduced supply of vacuum gas oil feedstock for production of base oils. After the continent’s lockdowns were relaxed during the summer, finished lubricant demand peaked by September, but the market suffered from limited base oil availability.

According to some Ukrainian market observers, prices for some API Group I and Group II base oils from Russia increased by almost 100% in the past six months. On Oct. 1, 2020, the free on board Black Sea price for the SN 150 and SN 500 products stood at U.S. $558 per ton and $582/t, respectively, on Mar. 1 FOB prices for these products increased to $1,068/t and $1,176/t, respectively.  

Another factor in Ukraine’s lubricant supply crisis is the reduction in base oil shipments from Russia.

Ukraine imported only 5,760 tons of Russian base oils in February this year, down 31% from January, according to Berlin-based DYM Resources, a principal trader that moves material from Russian and Turkmenistan refineries to Europe.

DYM concluded that the reasons for the drop in Russian base oil exports include the increased demand from the domestic market, the stockpiling ahead of the scheduled refinery maintenance cycles and the smaller numbers of days in February, compared to January. For example, in February the Russian domestic lube marketers ordered 118,000 tons of base oils transported by rail, almost 10% more than in January, DYM found. The trader expects the March base oil exports from Russia to decrease as more maintenances further limit product availability, while the domestic demand could increase because of the start of the agricultural season.