ILMA Compoundings - January 2020 - 14

INDUSTRY RUNDOWN

Market Report
Capacity Removal to Ease Basestock
Margin Squeeze
By Anuj Kumar
A flat finished lubricant market, significant basestock
capacity additions and a pause in capacity shutdowns
are the key factors that have been driving down margins for basestock suppliers. In such an overcrowded
market, Kline looks at one industry event that might
offer some respite.
The shipping, refining and other related industries have
been assessing the challenges, opportunities and cost
implications associated with the upcoming International
Maritime Organization's (IMO's) cut in sulfur emissions
(IMO 2020). But could the knock-on effects of this regulation be a plus for basestock suppliers who are operating in a
very tough marketplace?
Certainly, the basestock industry has been under pressure,
as production capacities have continued to increase at a
time when demand growth from its largest customer - the
finished lubricants market - has slowed. By far, the largest
share of global demand in the lubricant market comes
from the automotive sector. However, in 2018, for the
first time in a decade, global automotive production saw a
slight decline. This trend is expected to continue given the
Global Lubricant Basestock Demand for All Lubricants, 2018
Naphthenic
10%
Group III/III+
4%
Group III/III+
9%

Group II/II+
36%

Group IV/V
4%

uncertain macroeconomic environment and as growing
social pressure to reduce carbon emissions spurs ridesharing
and the uptick of electric vehicles.
With these market drivers in mind, it is expected that
lubricant demand will continue to be essentially flat, projected to grow at just 0.4% compound annual growth rate
(CAGR) on a global basis for 2018-2028. This significant
reduction in the growth forecast will impact the outlook for
all API basestock categories. In 2018, global finished lubricant demand reached 40.5 million tons, and the consequent
demand for basestocks was 36.5 million tons.1
UNBALANCED MARKET
However, with a global effective basestock capacity2 sitting
at more than 49 million tons, the market has remained
in surplus capacity. And in the past year, there have been
significant capacity additions along with a slowdown in
the removal of capacity via Group I shutdowns. This has
resulted in lower average operating rates, which makes it
hard to recover costs. While basestock prices in 2018 were
generally higher than those in 2017, margins remained
under pressure throughout the year.
Global Lubricant Basestock Effective Capacity by API Groups, 2018
Naphthenic
10%
Group IV
1%
Group III
4%
Group III
9%
Group II+
6%
Group II
32%

Group I
37%

Total: 36.5 million tons
Group III/III+ used in other applications
Group III/III+ used to blend synthetic and semi-synthetic
lubricants
NOTE: Group III basestocks with viscosity index (VI) of 130 and higher
classified as Group III+

14

JANUARY 2020

Group I
38%

| COMPOUNDINGS | ILMA.ORG

Total: 49.5 million tons

NOTE: Excludes Group V; Group III basestocks with VI of 130 and higher
classified as Group III+
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ILMA Compoundings - January 2020

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