Brazils finished lubricant demand declined another 7 percent to 1.15 million metric tons in 2016, according to an industry insider, meaning South and Central Americas largest market has shrunk 16 percent since 2013.
Since peaking at 1.37 million tons in 2013, the nations consumption of lubes has fallen three consecutive years as its economy declined due to its ongoing political crisis. Pedro Nelson, editor of the Lubes em Foco journal and news portal, suggested the market may be close to turning a corner.
For 2017, we expect the market to flat, or show a very small recovery, following the Brazilian GDP, Nelson said in an interview. A majority of the markets decline was due to the difficulty of the small lubes marketers during the economic recession, he continued.
In a presentation at Lubes em Focos Meet the Market conference in Rio de Janeiro June 20, Nelson said early data from the first four months of this year indicates that the countrys lubricant demand showed slight year-to-year improvement in January and March but was slightly down in February and January.
If and when finished lubricant demand revives, it should, of course, provide a boost to base oil consumption, but Nelson suggested that the market for finished products is trending away from domestic base oil supply. In 2016, he estimated, Brazil consumed 1.19 million tons of base stocks, including volumes used for applications other than finished lubes. Of that amount, 47 percent was produced by domestic virgin oil refineries, while imports and domestic rerefined stocks accounted for 37 percent and 18 percent, respectively.
Both of the countrys virgin base oil plants produce only API Group I stocks, but the need for Group I is diminishing as the quality of finished lubricants rises. In 2015 the Brazilian government began mandating that passenger car engine oils produced and sold in the country perform at least as well as API SJ or the equivalent ACEA standard from Europe, and that heavy-duty diesel engine oils be at least on par with API CG-4 or the ACEA equivalent. This year the bar was raised to API SL and API CH-4.
Photo: Petrobras
Brazil is following the global trend of using better base stocks, and Group III is starting to play an important role in this scenario, Nelson explained.
As lubricant quality rises, he said, base oil needs are trending toward Group III, which now accounts for 18 percent of imported base oils, and to lighter-viscosity oils. Nelson worries local refiners may not be able to keep up with demand. Both domestic base oil plants are owned by Petrobras, and due to its current financial situation, the company is unable to invest in its refineries. Brazil needs to define an important strategy for the downstream segment: to invest in new refineries (probably with new partners) or to assume the external dependency, he said. Brazils government is currently working with market players and a study group to form a strategy, Nelson noted.