India is a big country with a big thirst for base oils. This traditionally Group I market is continuing its shift toward higher-performance base stocks, accelerated by the implementation of tighter emissions standards. D.S. Nag takes the plunge into India’s base oil pool.
Demand for high-performance base stocks is set to gain pace in India as the world’s third-largest lubricant market after China and the United States embraces more stringent emission norms and automakers focus on improving fuel economy.
India was primarily an API Group I base oil market until a decade ago but has since made consistent efforts to shift toward Group II, said Anuj Kumar Singh, project manager at Kline & Co.’s energy practice. Today, Group II accounts for the biggest share in the country’s total base stocks demand, followed by Group I, Group III and naphthenics, he added. Demand for Group II and Group III is on the rise, while Group I is declining, Singh noted.
The country’s total base stocks demand is estimated to be around 3.5 million to 4 million metric tons per year, including raw materials consumed for process oils and finished lubricants that are exported, according to Kline. There is also a big market for base stocks from non-lubricant applications in India. The U.S. consultancy estimates demand for finished lubricants, including processing oils was around 2.8 million t/y in 2019.
The Indian market’s shift toward consumption of high-quality base stocks is also driven by changing original equipment manufacturer recommendations for finished lubes and growing fuel efficiency standards, Singh said. He expects this trend to accelerate in the future.
“One good thing that has happened in the Indian market, at least for the PCMO market, is that the bulk of the new demand is already at a 5W-XX viscosity grade. We have already seen that over the last few years some of the OEMs started recommending grades like 0W-20 and 0W-30, and India has already made the transition in that direction. These grades require Group III kind of base oils and PAOs,” Singh said. The majority of synthetics demand in India is met by Group III and III+, he added.
Shailendra Gokhale, managing partner of Mumbai-based Rosefield DAA International Consultancy LLP, said consumers are increasingly becoming quality conscious and looking for high-performance products now. With rising purchasing power, there is a shift in their preference toward performance-oriented products, he noted.
“The companies are also seeing the benefit of moving towards high performance products and educating customers as that’s where their margins will also go up,” Gokhale told Lubes’n’Greases.
Talking of the impact of deadly coronavirus outbreak on trade in India, Gokhale said the domestic lubricant and base oil market is unlikely to be affected much on the supply side due to ample availability of raw materials in South Korea, Saudi Arabia and the United Arab Emirates. The only thing is that there will be some impact on prices, he added. Growth prospects remain bright for high-performance base stocks in India due to the implementation of Bharat Stage VI vehicle emissions standards and the government’s focus on developing renewable energy, industry officials noted.
Riding the Bharat Wind
The government of India, one of the fastest-growing lubricant markets in the world, announced plans to jump from the BS IV automobile emissions standard to BS VI in April 2020, skipping the intermediate phase altogether in an attempt to accelerate its battle with air pollution and play a part in the mitigation of global warming. BS VI is roughly equivalent to the European Union’s Euro 6 standard and will require changes in the engine design of vehicles sold in India. Those new engines will require more advanced engine oils.
Dhiren Shah, editor-in-chief of Petrosil Group, which provides market intelligence reports on base oil, petroleum and chemical products, said development in automotive technologies and stringent emissions standard will raise the demand for high-performance base stocks due to the requirement for better-quality finished lubricants in applications.
“With BS VI, there will be an accelerated shift toward the use of lighter viscosity grades, which will require Group III base oils and PAOs,” Kline’s Singh noted. The other factor that would drive demand for these base stocks is OEMs’ focus on improving fuel economy and that lubricant plays a small but significant part in achieving fuel economy objectives, he said.
Uptake of BS VI lubricants will start in earnest only after a year or so, and in the first period demand will be mainly from the factory-fill route.
The wind turbine segment also offers modest growth opportunities for synthetic suppliers but at this stage consumes a tiny fraction of the overall lubricant market in the country, especially when compared with automotive and other industrial applications. Polyalphaolefin, polybutene and synthetic ester producers are more likely to benefit as the use of synthetics increases, Singh said.
Synthetic greases are required in a variety of applications such as mining, off-highway, automotive and wind turbine bearings, which operate in the most severe temperature and mechanical loading conditions. Demand for synthetic greases based on high-performance base stocks continues to grow at 6 percent, while the overall grease market is only growing at 0.3 percent, according to said Tatsuya Hamachi, customer development engineer of synthetics development, at ExxonMobil Japan Godo Kaisha.
The share of synthetic base oils for greases is growing continuously as they are able to meet the requirement of equipment, said Hamachi. He was speaking at the annual meeting of the Indian chapter of the United States-based National Lubricating Grease Institute in February 2020 in Indore, a city in India’s central state of Madhya Pradesh.
Singh said the share of Group III, which accounts for 5 to 7 percent of India’s total market, will increase but is growing from a small base. Therefore, the overall share of Group III in the next five years may not jump significantly despite growing at a higher rate than Group I and Group II.
“Nonetheless, synthetic base stocks, especially Group III, will enjoy good growth in India,” he added.
Kline estimates that the total demand for synthetic lubricants in India is at about 5 to 7 percent of the total finished lubricant market, excluding process oils. In addition, semi-synthetic lubricants account for 4 to 5 percent.
Without enough capacity of its own to meet domestic demand, India is one of the largest base oil importers globally. Until the coronavirus tore through base oil trading routes, refineries in South Korea, Singapore, the U.A.E., Saudi Arabia, the United States and Spain were the key suppliers.
The country produces close to 1 million t/y of base stocks annually and imports another 2.8 million to 3 million, including raw materials for process oils and finished lubricants that are exported. According to the Petrosil Group, India is estimated to have imported 2.9 million tons of base oil in the fiscal year 2018-2019, up 5 percent from 2.7 million tons a year ago.
Between April 2019 and January 2020, India is estimated to have imported about 2.8 million tons of base oil, Petrosil data showed. Of that total, Group II accounted for nearly 76 percent, followed by Group I at 16 percent, Group III and naphthenics at 3 percent each and rubber process oils at 2 percent. South Korea supplied nearly 42 percent of those imports during
the period, followed by Saudi Arabia at about 13 percent, Singapore at 12 percent, the U.A.E. at about 12 percent, and the U.S. at 6 percent, among others.
Despite India’s dependence on imports to meet domestic requirements, the growth prospects for high-performance base stocks certainly remain bright, given the changing regulatory environment, automakers focus on improving fuel economy and rising consumer preference for higher-quality lubricants.