In China and various other countries in Asia, the Lunar New Year holidays will be celebrated this year from Jan. 31 to around Feb. 6, and according to the Chinese zodiac, 2014 is the Year of the Horse. People born under this sign are described as active and energetic, though somewhat self-centered and unpredictable.
Most U.S. base oil market participants expect 2014 to be an energy-charged year as new developments are sure to keep players on their toes. Some of these changes are likely to defy time-honored tactics, and will require new ways of looking at problems and creating fresh opportunities.
Looming large on the horizon is the introduction of additional API Group II capacity from the new Chevron base oil plant in Pascagoula, Miss., towards the end of this quarter. Suppliers are worried that the market will be inundated with base oil, and that it may become more and more challenging to find a home for their products.
The race to protect or gain market share has already begun; Motiva took the lead with price decreases of 25 to 30 cents per gallon on its Group II cuts, on Jan. 10, and Phillips 66 similarly lowered its Group II and III cuts by Jan. 15. At this writing, it was not clear if others would follow.
Industry participants recalled that a similar situation arose at this time last year, when a majority of producers adjusted prices down in early January. However, once demand began to improve on heightened seasonal activity in late February, the market reversed direction as suppliers began to implement price increases.
One big difference this year will be that by the time demand picks up to a gallop, the additional product will also be trotting into the supply scene, and seems likely to exert downward pressure on pricing. This will be one of the hurdles that producers will have to clear, alongside volatile feedstock prices, high operating costs and persistently lean margins.
The year of the horse is considered fortunate by the Chinese, who admire the horse for its power and strength, helping warriors win important battles. Hopefully, the year will also bring victories to those facing the challenges of the base oil arena.