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Global demand for lubricant base stocks is on pace to reach an estimated 34.5 million metric tons in 2005. For those who think in liquid terms, thats roughly 660,000 barrels a day. Thats a lot of juice, and much of it now is consumed in the Asia-Pacific region. To meet its need for nearly 11 million metric tons of lubricants, Asia-Pacific soaks up close to 10 million metric tons of base stock supply

Keep in mind that the Asia-Pacific region covers a great deal of geography and climatic conditions, and comprises a number of countries with very different performance requirements. As such, there are disparate needs for finished lubricants and base stocks.

Zooming in on the region, one sees that China is by far the leading consumer of base stocks in Asia-Pacific. Base stock demand by China alone is on track to reach over 4 million metric tons, or roughly 40 percent of the Asia-Pacific total, in 2005. Other leaders in the region include Japan, India and South Korea, with roughly 1.8 million, 1.0 million and 0.8 million metric tons of demand, respectively. Together, these four account forabout 75 percent of the total base stock demand in the region.

But even this level of detail does not do the region justice in terms of revealing the true nature of its base stock demand. The reason is each country within the Asia-Pacific region is in a different stage of development and, consequently, of the life cycle for lubricants. For example, Chinas expansion is fueling robust growth in demand for base stocks, while Japans market is mature to declining- but of a higher technical quality. Moreover, the majority of demand in Asia-Pacific is for API Group I stocks, with higher-quality Group III stocks only required in select countries and product applications.

Although North America was historically the leader in terms of base stock demand, it recently lost that position to Asia-Pacific. Based on current demand estimates, without correction for the recent impact of Hurricane Katrina, North America is on pace to consume more than an estimated 9.0 million metric tons of base stock in 2005, or 27 percent of global demand. Make no mistake, though: While North America has slipped to second place on the global scorecard in terms of base stock volume, it remains the leader if you look at quality requirements, profitability and technical leadership.

It is also important to recognize that numbers – market size and segmentation and so on – tell only part of the story. The rest of the story is where the real value lies for base stock manufacturers, additive suppliers and finished lubricant marketers. Beneath the surface of the big-picture numbers, there are many important developments taking place. These include growth in international trade, increasingly stringent performance specifications, market development for Gas-to-Liquid base stocks, growing use of hydrocracker bottoms for feedstock, and a plethora of other issues.

It also includes the quiet but very powerful posturing, positioning and politicking that is conducted by base stock manufacturers and other industry stakeholders in an effort to increase the probability that their products, patents and/or processes will be the technology of choice moving forward. This issue in particular is often the least considered yet most significant in determining opportunities and threats in the base stock business.

It is often the least considered because it happens quietly, behind the scenes and subtly at conferences, association meetings and other industry gatherings, and at closed-door sessions. It can manifest itself in a strategic comment to a customer about how we will soon be floating in Group II+ and III base stocks because GTL will replace it. It can be seen by base stock manufacturers serving up data directly to OEMs, showing outstanding performance, highly competitive pricing and comforting proof that, should the OEM write specifications in favor of such products, there is more than enough base stock supply to meet demand. Similarly, it is seen when base stock suppliers drive fear into OEMs by saying there will be inadequate supply and high prices if the OEM proceeds with an objectionable specification. This situation was all too real when ILSAC GF-3 passenger car motor oil first was proposed.

The reason these tactics are so significant in evaluating base stock opportunities and threats is because, much as some might want to elieve that changes in base stock quality and technology are pulled through by demand, often they are not. Instead, they are frequently supply-side driven, and pushed through by ongoing negotiations with the majors, additive suppliers and OEMs. It happens all the time, and has grown to become part of the fabric of the U.S. Market.

The big question now is how this way of doing business will play in the global market – and how it may shape the opportunities and threats that lie beneath the surface of base stock supply and demand.

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