Europe’s Group I Ripe for Contraction


LONDON – API Group I base oil supply in Western Europe is ripe for further contraction, but if a Group I plant can survive the next five years, it should see a modest upturn in demand after 2013, Kline & Co. predicts.

Certainly the best European Group I plants can and will survive, Geeta Agashe, energy vice president at Kline & Co., told the ICIS World Base Oils & Lubricants Conference here on Feb. 18. But high-cost Group I plants are really facing the squeeze. There are still many vulnerable Group I plants, and Europe is the prize for Group II and III producers.

Agashe addressed the post-recession outlook for Group I base stocks globally and particularly in Western Europe in her comments and companion paper.

The global decline in lubricant consumption between 2007 and 2009 was 9 percent per year, Agashe said. But different regions fared differently. Europe and Russia were the worst affected and will take a long time to recover.

Global lubricant demand is projected to return to 2007s 39.3 million tons by 2012, she continued, but not in the same countries or industries. Europes and Russias combined share of that demand will drop from 26 percent to 23 percent by 2013.

Agashe noted that global Group I markets have been declining at 1.5 to 2 percent per year since 2004, a rate that hides a very large contraction in North America and Europe, offset by some growth in Asia and Latin America.

With Group I exiting automotive lube formulations and increasing Group II/III supply, the marketplace will continue to see significant rationalization in Group I supply and penetration by Group II/III.

But the news is not all bleak for Group I, Agashe said. Group I demand contraction due to technical obsolescence is approaching a plateau. Were not there yet but soon will be. In addition, wax, bright stocks and industrial lubes can help keep some Group I plants afloat.

Kline projects a slowdown in Group I demands global decline from 2008 to 2013, and a modest uptick from 2013 to 2018. Demand in 2018, however, will still be significantly below 2004 levels.

Turning to Western Europe, Agashe noted that Group I supply in the region faces some special problems. These include extremely long supply, difficulty disposing of aromatic extracts following the EUs ban on their use in tires, and fierce competition from North American Group II, Asian and Middle East Group III, and regional suppliers of rerefined Group II stocks.

Where can Western Europes 64,000 barrels per day of surplus Group I go? Agashe asked. Traditional export markets continue to shrink. In Latin America, Europes surplus Group I is challenged by North American Group II. In Africa, the Middle East and southern Asia, its challenged by local and Iranian Group I. And in the Far East its challenged by local Group II and III.

While North America will see a decline in Group I consumption through 2018, it is primarily the result of substitution push from Group II. By contrast, Western Europe will see a fast decline in technical demand for Group I.

Western Europe faces a passenger car motor oil grade shift to 0Ws and 5Ws; contraction in heavy duty 15Ws; increasing use of Group II in passenger car 10W 30s and heavy duty 10W 40s and 15W 40s; plus contraction in industrial volumes of about 2 percent per year.

And Europe is the prize for Group II and III producers, including Chevron and Asias Group III producers, Agashe continued. So Europe will be increasingly competitive, pushing Group I out of more markets.

While the outlook for different Group I plants depends on numerous variables, Agashe concluded, the regions Group I supply will see significant rationalization.

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