Base oils 2014: Group II use rises in Latin America

11 February 2014 10:17 Source:ICIS Chemical Business

Mexico’s Pemex is expanding and upgrading its base oils capacities, as demand grows for Group II and II+ products in Latin America

The Mexican base oils market moved towards the use of Group II and II+ base stocks during 2013, driving ­domestic producer Pemex to increase its base oil offerings in the country going ­forward into 2014 and beyond.

Pemex is upgrading its lubricant plants to state-of-the-art technologies to produce Group I, II and possibly Group III base oils, according to specialists working with the company.

 

 Increased direct business with the US by rail may spark more contracts and fewer spot movements

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According to some forecasts, demand in Mexico for Group II and II+ base oils will grow by about 4%/year through to 2018, with Group II oils replacing much of the Group I product currently dominating Mexico’s consumer automotive formulations. Increasingly stringent emission and fuel economy standards are pushing these changes.

Pemex is currently the only base oils producer in Mexico, with 6,000 bbl/day of Group I capacity at its Salamanca location. Actual base oil production at the location has been lower than its production capacity for several years because of the quality of crude oil available, according to industry sources.

The expansion project – for which capacity volumes have not been discussed – will take place at the Salamanca plant. Planning and approval for the project have been completed and online status is expected to be achieved by 2018, according to industry sources.

Significant quantities of US Group I and Group II base oils made their way into Mexico during 2013. However, Pemex conducted a turnaround of about 35 days at Salamanca during the fourth quarter of 2013, with new technologies said to be part of the work done.

‘BUYERS’ MARKET’ IN MEXICO
The technology upgrades at the facility and a subdued domestic lubricant market cooled much of the appetite for US base stocks spot business into Mexico during the fourth quarter, a trend which may continue.

Rail logistics between the US and Mexico have improved, offering US sellers opportunities to move base stocks in direct business rather than spot tonnage, shipping through Brownsville, Texas. The opportunity for more direct business is anticipated to encourage more contracts and fewer spot movements.

In early 2014, Mexican base oil players see a “buyers’ market” for base stocks and expect this to continue, because of a perception across the market that supply is ample, particularly for light viscosity grades.

Sources say offers from the US continue to be good, but point out that other supply regions, such as Europe, are also keen to move product into Mexico. “We do not see this is going to change any time soon,” one Mexican buyer comments. “We think this is going to be a buyers’ market for a long time.”

With Group II prices nearing parity with Group I in some grades – mostly the light viscosity base oils – more Group II base stocks have been moving into the country. Additionally, with Mexico’s lubricant demand continuing to be slow-paced, buyers are seeing attractive offers from Europe, at levels below offers at Brownsville, Texas. However, with Pemex Group I production up – even during the turnaround – requirements have been largely met ­either by the domestic supplier or from the US.

EXXONMOBIL DISTRIBUTOR DEAL
ExxonMobil recently signed a distributor agreement with Quimica Delta, the US-based oil company has confirmed. The agreement will enhance the supply of ExxonMobil’s Group I, II and II+ base stocks across Mexico, according to the company. The addition of Quimica Delta as an authorised branded distributor will enable ExxonMobil to respond to an increasing market need and to broaden the reach of its Group I, II, and II+ base stocks to this region, the company said. Quimica Delta is one of Mexico’s largest petrochemical suppliers.

Further south, Brazil – South America’s primary lubricant market – is also showing increased appetite for Group II base oils, encouraged by the supply proximity of North American production and by the increasingly attractive price options for premium-grade base stocks.

According to speakers at ICIS’s Pan-American Base Oils conference in New Jersey, US, Brazilian finished lubricant demand will grow by 2.5%/year over the next 10 years. The growth in demand is slower than the 6.4%/year growth between 2010 and 2012, but represents continuing potential opportunity for lubricant producers and merchants.

Judith Taylor is a senior editor in the ICIS Houston office, reporting on base oils

By Judith Taylor