Synthetics Expected to Grow


Global demand for all lubricants has been projected to rise slowly in coming years, but industry sources forecast significantly faster growth for synthetic and semi-synthetic products.

Recent increases in demand for synthetics and semi-synthetics was enabled by expansion in API Group III base stock supply, and coming introduction of more Group III capacity should allow a further uptake of higher-performing lubes.

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The overall lubricant market is expected to grow less than 1 percent annually through 2020, however, synthetics are projected to grow almost 4 percent per year, and semi-synthetics just under 1.5 percent, according to projections by Kline & Co. consultants. Milind Phadke, the director of Klines Energy Practice, told the Union of the European Lubricant Industrys Annual Congress in October that synthetics will grow faster than semi-synthetics because the ample availability of Group IIIs will hold down their relative cost.

Group III is the main base stock used in synthetic lubricants. Synthetics are loosely defined within the industry. Kline, a consulting group based in Parsippany, N.J., conducted its analysis using 2015 as the base year.

Infineums North American Market Manager Steve Haffner told Lube Report the penetration of synthetic and semi-synthetic products in the global market will likely cause the cost of base stocks used to formulate them to remain highly competitive for the immediate future.

The profitability of synthetic and semi-synthetic lubricants will also fluctuate with increased competition. As these products become more common, Haffner explained, we would expect to see the market become more competitive, potentially impacting profitability.

Haffner noted that as demand for synthetic lubricants continues to grow, they should continue to afford healthy profit margins for oil marketers. It is less clear to Haffner if semi-synthetic products will do the same.

Roughly 8 percent of global base stock supply is currently used to blend synthetic and semi-synthetic lubricants – over 50 percent of which are made with Group III base stocks. Kline estimates nearly 7.5 million tons of new base stock capacity will be added in the coming years, with 2.1 million tons being Group III.

An abundant supply of high quality base stocks – Group II and Group III – has made it easy for the lubricant industry to raise the quality of its products. Because of this, demand for synthetics has increased, and likely will continue to do so. Kline cites three major factors pulling demand: technical demand by original equipment manufacturers, environmental regulations and operating cost optimization. As these three factors continue to pull at the market, use of synthetic and semi-synthetic lubricants will grow, but at the expense of conventional lubricants.

The Group I market has shrunk quite rapidly and has become a niche market, said Phadke at the Annual Congress of the Union of the European Lubricant Industry, in October in Berlin. The Group II market is also beginning to shrink as demand for Group II is being captured by Group III. This is because of a desire for lighter viscosity lubricants. As this trend continues, it will become less practical to make large-volume categories of finished lubricants with base stocks other than Group III.

The decline of conventional lubricants is already evident in developed markets, such as North America and Western Europe. In these markets, however, synthetics and semi-synthetics currently experience higher demand levels, and are expected to have the smallest level of annual growth at under 0.5 percent each.

Synthetic and semi-synthetic products are expected to enjoy the most growth in the Middle East, at 2 percent, with Asia following close behind, at just over 1 percent. In absolute terms, there will be less difference between regions in demand growth for synthetics and semi-synthetics, due to the fact that demand levels in the Middle East and Asia are currently much smaller.

Regardless of size, emerging markets are demanding higher preforming lubricants. We are already seeing the need for more premium lubricants in emerging markets as modern low-emission vehicles are being introduced, Haffner told Lube Report. He cites China as a prime example. Here, the government is trying to reduce tail pipe emissions, resulting in new vehicles requiring modern premium lubricants.

Kline predicts synthetics and semi-synthetics will experience similar levels of demand growth in all industries, with the exception of passenger car motor oils. In that segment, semi-synthetics growth is predicted to sit around 3.5 percent per year, where synthetics should grow just under 8 percent. Marketing for semi-synthetics doesnt make much sense anymore because the cost of synthetic lubricants is decreasing. Milind.

This discrepancy in growth between synthetics and semi-synthetics in passenger car oils is likely due to synthetics desirability among automakers. Original equipment manufacturers find synthetics more desirable for passenger car lubricants because of their superior ability to adhere to environmental regulations and increase fuel efficiency.

The large increase in availability of Group III base stocks has allowed many more finished lube marketers to offer synthetic passenger car motor oils. As a result, major global players like Shell and ExxonMobil now face competition from a wide variety of players, such as OEMs, national oil companies and smaller regional or domestic marketers.

These new players see synthetic and semi-synthetic lubricants as an avenue to increase the profitability of their products, and Haffner expects this trend to continue. As the segment grows, he noted, there is a need for additive companies to provide more product options for customers. Only the largest marketers typically offer a full range in the highly complex top tier segments.

Haffner predicts more stringent regulations and increasing performance demands will cause continued innovation in the lubricants market, leading to an increased desire for synthetic and semi-synthetic base stocks. He and others expect this trend to continue throughout the global market.

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