Changing Global Landscape for Base Oils€¦ · Fundamentals affecting base oils market Crude trend...

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Changing Global Landscape for Base Oils

Izham Ahmad

Senior Editor

ICIS

2nd Asian Industrial Lubricants Conference

12-13 November 2019

Singapore

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Agenda

Fundamentals affecting base oils marketCrude trendUS-China trade war

Industrial lubricants in the base oils worldDemand, usageBase oils price trends

Global base oils supply and demandChina, India base oils demand

Changing dynamics of Group I and Group II base oilsIran Group I exportsIMO 2020Growth of Group II Rising influence of Middle East base oils

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2018-2019 – Crude lower as weaker economic outlook weighs on market sentiment

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Changes in the market structure in 2019

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Oil market tighter in H2 2019 but oversupply expected in H1 2020

50

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66

86

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90

92

94

96

98

100

102

104

Day

s o

f Su

pp

ly

bb

l/d

ay

Supply and Demand Balance 2014-2019(Source: IEA, EIA)

Total Supply Total Demand OECD Commercial Stocks - Days of Supply

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Source: USTR, Chinese Ministry of Commerce

Growing political and economic rivalry between US and China

US-CHINA

TRADE WAR

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China drives global economic growth

China remains the main engine of global economic growthTrade, debt and economic reform remain longer-term issues

China will overtake the US as the world’s largest economyEmphasis on “when” rather than on “whether”

Global asset portfolios will rebalance towards Chinese markets to reflect China’s place in the world economy

China’s strong growth prospects for investors yearning for yield

Trade dispute a catalyst because it will accelerate the diversification away from US market

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Industrial lubricants in the base oils world

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Global base oils demand segments

• Transportation sector still the biggest segment of the base oils market

• Likely to remain so in coming years

• Industrial oils segment is second biggest

• Limited new technological changes/applications

Source: industry

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Common base oils applications in industrial lubricants

• Most commonly used

• Gears

• Metalworking, pumps

Group IGroup II

Naphthenics

• Higher VI

• Extreme temperature applications

• More specialized usage

Group IIIGroup III+

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ICIS Group I price trends

400.0

450.0

500.0

550.0

600.0

650.0

700.0

750.0

800.0

850.0

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2018

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2018

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2018

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2018

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2018

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$/to

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Group I Iran prices

Base Oils Group I SN150 FOB Iran USD/tonne Base Oils Group I SN500 FOB Iran USD/tonne

400.0

450.0

500.0

550.0

600.0

650.0

700.0

750.0

800.0

850.0

900.0

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Group I Asian prices

Base Oils Group I SN150 FOB Asia USD/tonne Base Oils Group I SN500 FOB Asia USD/tonne

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ICIS Group II price trends

500.0

550.0

600.0

650.0

700.0

750.0

800.0

850.0

900.0

09

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01

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Base Oils Group II 500N CFR UAE

400.0

450.0

500.0

550.0

600.0

650.0

700.0

750.0

800.0

850.0

900.0

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018

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018

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018

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018

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019

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Base Oils Group II 500N FOB/CFR NE Asia

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Global base oils supply and demand

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-6

-4

-2

0

2

4

6

Last Decade:Incremental Demand, million tonnes

North America

South America

Europe & F.USSR

Asia

Middle East & Africa

Current Demand Profile: ~ 37m tonnes

Growth in Asian and developing economies barely compensated for loss of demand in mature markets

Sources: ICIS Supply & Demand Database, ICIS Analytics

Global Base Oils Demand: Asia Dominates

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0

5

10

15

20

25

Group V (Naph)

Group IV

Group III

Group II

Group I

North America

Regional imbalances are evident for all the key groups, generating trade flows


South America

EU & F.USSR

Asia

ME & Africa

Capacity

Demand

Capacity

Demand

Capacity

Demand

Capacity

Demand

Capacity

Demand

NB: 2017 Middle East capacity count is affected by plant closures (GTLs…), delays, etc.

Global Base Oils Capacity vs Demand: Regional Dimensions2017 (million tonnes)

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Could demand be affected by slower auto sales?

• China is world largest automobile market

• China’s vehicle sales numbers 2018 vs 2019

• Vehicle sales are slowing

• China Mulls Goal of 60% of Auto Sales to Be Electric by 2035: Bloomberg News

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China’s base oils demand analysis

China’s base oils consumption

fell to 8.08m tonnes in 2018

Downstream lubricants sector

affected by decline in industrial

and manufacturing performance

– reduced Group I demand

Group II/III demand stable to soft

on lower demand for automotive

lubricants due to falling car sales

5.4%

-8.1%

5.0%6.2%

-4.2%

-10%

-5%

0%

5%

10%

0

3

6

9

2014 2015 2016 2017 2018

Consumption % change

million

tonnes China’s base oils apparent consumption

Source: ICIS Supply & Demand Database

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India’s car sales have been slowing

• Base oils demand from India’s passenger car segment not encouraging

• Year-on-year car sales have been slowing

• Domestic monthly sales also showing signs of softening

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India’s base oils imports have not shown steady increases

-

50,000

100,000

150,000

200,000

250,000

300,000

January February March April May June July August September October November December

In t

on

nes

India's base oils imports 2017-2019

2017 2018 2019Source: ICIS Supply & Demand Database

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Group I & II base oils’ changing dynamics

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Global base oil share by group

Group I base oils still accounts for largest share of global base oils demand

Source: Industry

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0%

20%

40%

60%

80%

100%

Group I Group II Group III Group IV Group V (Naph)

Group II becomes a major grade on a global basis but different regional profiles will persist


0%

20%

40%

60%

80%

100%

Group I Group II Group III Group IV Group V (Naph)

2018 2025

Group I share shrinks, Group II increases:

2018 vs 2025

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US sanctions on Iran have had some impact


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Iran’s base oils exports 2017-2018


2017 2018

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Iran’s base oils exports Jan-Apr 2019


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Group I base oils margins will be reduced post IMO 2020

VGO Energy / OPEX Co Prodcut Credit Margin Grp I

$/T

on

ne

Pro

du

ct

Grp I Margins Pre IMO

VGO Energy / OPEX Co Prodcut Credit Margin Grp I

$/T

on

ne

Pro

du

ct

Grp I Margins Post IMO


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1,815310 571

390

490

Asia capacity expansions mainly in Group II and Group III

Hainan Handi Sunshine Existing GII: 300ktaExpanded GII/III: 1mta Start-up: H1 2020

Shandong QingyuanExisting GII: 600ktaExpanded GII: 1.4mta Start-up: Mar 2019

Hengli PetrochemicalNew GII/III: 540kta Start-up: Apr 2019

Shandong KaitaiPetrochemicalNew GII: 150kta Start-up: Mar 2019

Shanxi Lu’anNew GIII+: 600kta Start-up: 2019

Hebei FeitianExisting GII: 100ktaExpanded GII: 350kta Start-up: Sep 2019

ExxonMobil SingaporeExisting GI: 650ktaExisting GII: 1.6mtaPhase I additional GII: 100kta Phase I start-up: May 2019Phase II additional GII: 1mta Phase II start-up: 2023

• Not all projects may proceed, although most likely• China’s operating rates uncertain• ExxonMobil Singapore made final investment

decision to go ahead with Phase II expansion

China

Singapore

India

HPCL MumbaiExisting GI/II: 450ktaAdditional GII/III: 150kta Start-up: 2020 or beyond

ExxonMobil RotterdamNew GII: 1mta Start-up: Feb 2019

Europe

Petronas MelakaExisting GIII+: 330ktaAdditional GIII+: 250kta Start-up: 2023

Malaysia

IOCL HaldiaExisting GI/II: 250ktaAdditional GIII: 100kta Start-up: 2020 or beyond

IOCL PanipatNew GII: 450ktaNew GIII: 100kta Start-up: 2025

Shandong Shida ChangshengNew GII: 300kta Start-up: Mar 2019

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Middle East has become major player in Group III/III+

Source: ICIS Supply & Demand Database, industry

0 500,000 1,000,000 1,500,000 2,000,000 2,500,000

Group I

Group II

Group III/Group III+

Middle East base oils production capacities

Saudi Aramco/Luberef Saudi Aramco/Luberef ADNOC BAPCO/Neste (Bahrain Lube Oil Co) Shell Pearl GTL Sepahan Oil Company Iranol Behran Oil Pars Oil

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Changing dynamics in India’s base oils imports


SOUTH KOREA45%

UNITED ARAB EMIRATES13%

SINGAPORE12%

SAUDI ARABIA12%

UNITED STATES10%

SPAIN4%

BELGIUM1%

TAIWAN, PROVINCE OF CHINA

1%BAHRAIN

1%GREECE

1%

India's base oils imports by origin2018

SOUTH KOREA50%


SINGAPORE13%

UNITED STATES9%

SPAIN3%


2%

SWEDEN2%

BAHRAIN1%

QATAR1%

AUSTRALIA1%

India's base oils imports by origin2017

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India’s base oils imports by origin Jan-Aug 2019

SOUTH KOREA44%

SINGAPORE13%

SAUDI ARABIA11%

UNITED ARAB EMIRATES

11%

UNITED STATES10%

SPAIN4%


3%

BAHRAIN2%

BELGIUM1%

OMAN1%

• India’s 2019 data show trend continuing

• In Jan-Aug 2019, Middle East origin base oils accounted for 25% of top 10 importers into India

• Middle East import volume second only to South Korean material


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China’s base oils imports Jan-Aug 2019


• China’s 2019 year to date import data again suggest continuing trend

• South Korea, Singapore main sources of base oils imports

• Middle East origin base oils accounted for 8% of top 10 base oils importers

SOUTH KOREA35%

SINGAPORE26%


17%

THAILAND5%

QATAR5%

JAPAN4%


INDONESIA2%

MALAYSIA2%

RUSSIAN FEDERATION1%

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South Korea base oils exports by country

China remains South Korea’s top export nation but India is catching up

Group II/III exports to UAE fell on new Middle Eastern capacities

Source: ICIS Supply and Demand Database

China21%

India20%

USA15%

Japan8%

Singapore7%

Thailand5%

Belgium4%

The Netherlands3%

Indonesia3%

Vietnam2%

Others 12%

2018 Total exports: 4.668mtImports as a proportion of exports: 9.4%

China22%

India19%

USA15%

Japan8%

Singapore8%

Thailand5%

Belgium4%

The Netherlands3%

UAE3%

Indonesia3% Others

10%

2017 Total exports: 4.534mtImports as a proportion of exports: 10.0%

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What lies ahead

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Future implications for industrial lubricants

Industrial lubricant makers may need to review base oils origins

Group I segment to slowly shrink but not disappear

Group II to replace

Eyes on China, India

Middle East share of global Group II/III markets to rise

Asian producers’ market share to decrease

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ICIS Asia & Middle East Base Oils Team

Middle East

Izham Ahmad

[email protected]

Asia Pacific

Matthew Chong

[email protected]

Crude AnalysisJames Dennis Sophie Udubasceanu

[email protected] [email protected]

ICIS ConsultingMichael Connolly

[email protected]

mailto:[email protected]





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