The picture in China is still hazy, Milind Phadke, energy practice director for Kline, explained to Lube Report. What we know for sure is that the first three quarters of 2012 saw contraction from 2011 lubricant consumption levels. Depending on how much recovery happened in the last quarter of 2012, China may have ended the year with a flat market or a declining one with respect to 2011.
What is certain is that growth, if any, was significantly lower than the 5 percent we are used to seeing in this market.
Kline attributed Chinas drop in lubricant demand at least in part to government efforts to reign in construction and the housing market, to prevent a housing bubble.
While Asia has been the growth engine for the global lubricants industry in the past decade, the region is now slowing down because China is slowing down, Phadke told the ICIS conference here June 26, in his base oil supply/demand overview.
He predicted that Asia may lose its position as API Group III base oil supplier to the world in the coming decade. Most of the Asian Group III will remain in the region, said Phadke, and this will drive an expansion in the synthetic and semi-synthetic market in the region, especially for motor oil.
New Group III Players
By 2022, Asia will account for just one-third of global Group III supply, with Europe and the Middle East offering comparable supply, Phadke forecasts. Kline sees Group III supply growing worldwide by more than 4 million tons from 2012 to 2022, with some of that new supply coming from new players.
South Africas Sasol will become a significant Group III supplier with estimated capacity of over 1 million tons per year. This will be gas-to-liquid base oil from a plant in Lake Charles, La., Phadke confirmed to Lube Report, estimated to reach the market around 2018 or 2019.
Kline foresees Tulsa, Okla.-based Group I refiner HollyFrontier adding nearly 500,000 t/y of Group III capacity in the coming decade. In addition, South Koreas SK will add over 1 million t/y of new Group III, and several Russian refiners, including Rosneft, Lukoil, Tatneft and Slavneft together will contribute about 800,000 t/y to the worlds Group III supply.
Supply/Demand
Kline estimates global finished lubricant demand in 2012 at 39 million tons, a minimal 0.9 percent growth over 2011. Globally, synthetic and semi-synthetic lubes account for about 13 percent of total demand, but penetration differs signficantly by region. In Europe, these synlubes accounted for more than 25 percent of the market, in North America a little less than 15 percent, in Asia-Pacific under 10 percent, and in Africa and the Middle East less than 5 percent.
This lubricant demand results in a 36 million ton demand for lubricant base stocks, said Phadke. Kline estimates 2012 global base stock supply, excluding Groups IV and V, to be 38.2 million tons.
Globally, the Group I market is balanced as suppliers have reduced their operating rates to match the demand, he continued. Group II and III markets are in surplus, causing their substitution in Group I applications. Both product and regional supply-demand imbalances drive substitution and trade, and impact prices.
In addition to the Group III growth noted above, Phadke pointed out that global Group II supply will increase by more than 8 million tons between 2012 and 2022, while Group I supply will decline by over 4 million tons – with 60 percent of that loss in Europe alone.
A total of nearly 12 million tons of new Group II and III supply will be added over the next 10 years, as Asia slows down, said Phadke. The key uncertainty is how this additional volume will be accommodated. A reduction of 4 to 5 million tons of Group I supply is expected, but will not balance the market. We expect that some high-cost Group II refiners might face significant pricing pressures and might close down as well.