ILMA Compoundings - July 2020 - 16

INDUSTRY RUNDOWN

Market Report
Impact of COVID-19 on the Global
Lubricant Basestocks Market
By Anuj Kumar Singh
The significant drop in lubricant demand expected in
the first half of 2020 and the prospect of a prolonged
and weak recovery - all due to the COVID-19 pandemic -
have the potential to profoundly transform the basestocks industry.
For a decade, lubricant basestock supply has been
characterized by significant surplus capacity. Static basestock demand and the continuing addition of new capacity
translated into lower capacity utilization and a decline
in profitability. Simply put, the basestock industry was
in financial difficulty even before 2020. Now, while the
COVID-19 pandemic and concurrent drop in crude oil
prices have created more short-term pain, it may force some
sanity into the industry in the long term.
A SHARP DECLINE IN BASESTOCKS DEMAND
Overall lubricant basestock demand is closely tied to finished lubricant demand, as lubricants account for more than
90% of the basestocks market. At the time of this writing,
Kline estimates that global finished lubricant demand could
decline by 15% to 30% in 2020 compared to 2019 due to
the COVID-19 pandemic and related containment efforts.
As a result, overall lubricant basestocks demand is likely to
see a similar drop in consumption, though the impact on
different API groups will be different.
Containment efforts have walloped the consumer automotive lubricant market with the most immediate hit, as
restrictions are imposed on people's movement in lockdown
situations. However, in the event of prolonged lockdowns,
significant reductions in demand will be experienced by
commercial and industrial lubricants markets as well.
A contraction in the consumer lubricants market is
having an immediate impact on demand for Group III/III+
basestocks, especially in markets with higher penetration of
high-quality passenger car motor oils (PCMO). For example, the U.S. and much of Western Europe have lockdown
conditions affecting personal mobility and, hence, PCMO

16

JULY 2020

| COMPOUNDINGS | ILMA.ORG

demand. Both regions have a high share of high-quality
PCMO blended with Group III/III+ and polyalphaolefin (PAO). Therefore, these basestocks will see the most
significant drop in demand. In contrast, due to the typical
formulations used in the Asia-Pacific region and in the rest
of the world, the impact of reducing PCMO demand will
be experienced by Group II/II+ and Group I basestocks in
these regions.
Since Group II/II+ basestocks are the leading materials
used to formulate heavy-duty motor oil (HDMO), a declining commercial segment will have the biggest impact on these
basestocks. Of course, there will be regional variations, with
North America and Asia-Pacific witnessing much higher
declines in Group II/II+ in contrast to other regions that have
relatively higher shares of Group I in HDMO formulations.
Demand for other automotive products, including gear oils
and automatic transmission fluids (ATF), is more dependent
on factory-fill (driven by automotive production) than
service-fill (driven by automotive population). Amid severe
lockdown conditions, during which automobile production
is halted, demand for these products is affected more severely
than engine oils. Decline in demand for ATFs will primarily
impact demand for Group III/III+ and PAOs, as these basestocks are used to blend fill-for-life ATF products.
A decline in demand for industrial products will mean
the biggest decline in demand for Group I basestocks, since
Group I accounts for the majority share in the formulation
of industrial lubricants on a global basis. A decline in
demand for industrial products will also result in demand
loss for naphthenics.
Overall, the basestocks market could lose between 5 million and 10 million metric tons of demand in 2020. Group
I basestocks will account for most of this loss (1.7 million
to 3.6 million metric tons), followed very closely by Group
II/II+ (1.7 million to 3.4 million metric tons), together
accounting for at least two-thirds of the global basestock


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ILMA Compoundings - July 2020

Table of Contents for the Digital Edition of ILMA Compoundings - July 2020

ILMA Compoundings - July 2020 - Cover1
ILMA Compoundings - July 2020 - Cover2
ILMA Compoundings - July 2020 - 1
ILMA Compoundings - July 2020 - 2
ILMA Compoundings - July 2020 - 3
ILMA Compoundings - July 2020 - 4
ILMA Compoundings - July 2020 - 5
ILMA Compoundings - July 2020 - 6
ILMA Compoundings - July 2020 - 7
ILMA Compoundings - July 2020 - 8
ILMA Compoundings - July 2020 - 9
ILMA Compoundings - July 2020 - 10
ILMA Compoundings - July 2020 - 11
ILMA Compoundings - July 2020 - 12
ILMA Compoundings - July 2020 - 13
ILMA Compoundings - July 2020 - 14
ILMA Compoundings - July 2020 - 15
ILMA Compoundings - July 2020 - 16
ILMA Compoundings - July 2020 - 17
ILMA Compoundings - July 2020 - 18
ILMA Compoundings - July 2020 - 19
ILMA Compoundings - July 2020 - 20
ILMA Compoundings - July 2020 - 21
ILMA Compoundings - July 2020 - 22
ILMA Compoundings - July 2020 - 23
ILMA Compoundings - July 2020 - 24
ILMA Compoundings - July 2020 - 25
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ILMA Compoundings - July 2020 - 27
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ILMA Compoundings - July 2020 - 37
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ILMA Compoundings - July 2020 - 40
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