11 October 2010 23:13 [Source: ICIS news]
PALM SPRINGS (ICIS)--Buyers and sellers of paraffinic base oils remain unsure about supply/demand fundamentals through the end of the year and into 2011 as gloomy economic world news continues to flow through the market and buyers purchase limited quantities to protect themselves from a repeat of the 2009 price collapse, sources said on Monday.
“The future is really unclear. No one wants to commit,” a paraffinic base oil seller said on the sidelines of the Independent Lubricant Manufacturers Association (ILMA) annual meeting.
“Our business did pick up some in September and I expect slightly higher numbers in October before volumes start to fall in November/December,” another paraffinic base oil seller said.
While demand has held steady throughout 2010 from automotive, industrial and process sectors, buyers were unsure if economic indicators could point to a weak fourth quarter and were keeping low inventories just in case.
“Our tanks are huge but they are pretty dried up at the moment,” a buyer said. “We are keeping just the bare amount needed in case prices fall again or our downstream demand plummets. No one wants to repeat the collapse of 2009.”
With more than half of all downstream demand tied to the automotive sector, base oil players were especially hurt by the economic crisis in 2009. Purchased volumes by several buyers fell as much as 40% in some cases as a result of the struggling automobile industry.
As a result, US base oil production in 2009 sank to its lowest level since 1983, according to the US Energy Information Administration (EIA).
“With all the turnarounds refiners are talking about for January, I am beginning to think 2010 could repeat itself in 2011,” a supplier said.
Multiple US plants took planned maintenance turnarounds during the first quarter leading to especially low supply just when buyers were ready to re-stock in the second quarter.
On the other hand, huge group III base oils capacities are coming up in the next few years, which will certainly change supply conditions.
Shell’s gas-to-liquids (GTL) facility in Qatar, named Pearl, which has a capacity to produce more than 1m tonnes of group III base oils, is expected to start up in 2011.
Similarly, other group III capacities announced include Neste’s 500,000 tonne/year facility in Bahrain, which was expected to start up in late 2011/early 2012, and SK Lubricants’ 500,000 tonne/year plant in Spain, which has an expected startup date of 2014.
This year’s ILMA annual meeting runs from 9-12 October.
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