15 February 2013 09:52 [Source: ICB]
Base oil markets go into 2013 with some trepidation. The final months of last year served to confirm the continuing softness of demand around the globe. Combine this with adequate, if not oversupply, and the result is a downwards trend in pricing that looks hard to reverse.
There are some brighter spots. Automotive production in the US recovered strongly in 2012 and is expected to continue to perform well this year. Similarly in China, automotive demand is still strong, supporting some growth at least in lubricants and thus base oils demand. In Europe, by contrast, the automotive sector is severely depressed and with economic recovery nowhere in sight, will remain so for some time.
The sector is an important one for base oils - not only in terms of supply, but for driving up the quality of base oils as car makers and regulators around the world develop and mandate more efficient and cleaner engines. The next round of ILSAC standards is not that far away, and will have an effect on base oil formulations, increasing the need for Group II and III usage.
Producers in North America, the Middle East and Asia are responding by boosting output in these grade categories, but projects planned a few years ago are now coming onstream at a difficult time. This is causing sellers to seek out new export opportunities in markets that are still showing signs of strength, as in Latin America, or to push higher grades into lower end uses that would not previously have been considered.
In the longer term, automotive trends are likely to affect base oils even further, as smaller vehicles with hybrid or electric engines and heavy use of IT change requirements fundamentally. These issues and more will be aired at the ICIS Base Oils & Lubricants Conference in London this week. It promises to be a fascinating discussion. I hope you find this publication and the conference useful and stimulating.
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