So Where Is Group III Going?
SK Lubricants raised a lot of eyebrows and some hackles at the ICIS World Base Oils & Lubricants Conference in London in late February with its prediction that the world will face a shortage of API Group III base stocks by 2017. Paul Kerwin, European sales manager for SK Lubricants Europe, predicted the shortfall will grow to more than 400,000 tons per year by 2018, adding that 90 percent of the demand for Group III is for just 60 percent of capacity, the 4- and 6-centiStoke base stocks needed for high performance fuel economy engine oils.
Kline & Co. and SBA Consulting offered sharply differing views.
SBA Managing Director Stephen Ames told the ICIS gathering that over three million tons per year of new Group III capacity are planned to come on stream from 2014 to 2018, and at least half will be added in 2014. The Group III market is expected to be oversupplied by one to two million t/y over the next five years, perhaps longer, said Ames.
Milind Phadke, Klines energy practice director, agreed that the world will see significant surpluses of supply over technical demand. Nearly 10 million tons of new Group II/III capacity is planned through 2022, he pointed out, including new supplies of Group III and III+ from HollyFrontier, Sasol, Takreer, Russia and others.
Phadke cautioned that the future of the base stock industry will be very different from the past. Slow demand growth and base stock overcapacity will depress capacity utilization, and accelerated closure of high cost plants is almost inevitable.
Putting money where its mouth is, SK said its investing in a 50 percent Group III+ capacity increase at its joint venture plant in Dumai, Indonesia, after it opens its new 630,000 t/y Group III joint venture plant in Cartagena, Spain, later this year.
Phadke warned grimly that the future may see repositioning of ownership in base stock players due to inadequate returns on capital over the rest of the decade.
What do you think?