ILMA Compoundings – October 2019 - 24

INDUSTRY RUNDOWN

Market Report
How Basestock Suppliers Can Profit in a
Buyer's Market
By Anuj Kumar

Gone are the days when a basestock supplier could
manufacture a product that met a certain API classification
and expect to sell it based on its quality alone. The market
is changing dramatically - not only in terms of quality
expectations, but also in the way it expects to be supplied,
which is creating a new set of challenges for marketers.
Basestock producers are having a tough time as massive
capacity additions of predominantly Group II and Group
III products come on stream right across the globe in an
era of relatively flat lubricant demand. Kline forecasts an
average annual finished lubricant demand growth rate of
only around 0.5% over the next 10 years, while more than 5
million tons of new basestock capacity has been announced
and is expected to come on stream by 2028.
Not only does the industry have this overcapacity as a
backdrop, but there is also a continued growth of merchant
basestock supply at the expense of in-house production,
which is intensifying competition. This makes it increasingly
important for today's suppliers to understand customers'
purchasing criteria and the decision-making process they
apply to select suppliers and products.

producing more than 10.7 million tons per year of paraffinic
basestock capacity (excluding re-refined oils).
In Europe, once a big importer of Group II, the new
roughly 1 million tons per year Group II capacity from
ExxonMobil's Rotterdam plant, which came on stream
in February 2019, looks set to change market dynamics.
The organization also recently announced the completion
of an expansion in Singapore and, although the project's
size is unclear, it began to supply customers with Group
II products in the third quarter of 2019. In addition, a
final investment decision has been made to proceed with a
further multibillion-dollar expansion of its refining facilities
in Singapore, which will add around 1 million metric tons
of Group II, with startup anticipated in 2023.
New capacities have also started up in regions - the
Middle East, for example - that formerly had a high
reliance on imports.
It's not that disconnects between basestock capacity and
demand are unusual. Each region produces less of some
grades and more of others than it needs, which is why the
global basestock industry has a healthy interregional trade.
However, the growing capacity and demand mismatch is
resulting in an unfavorable environment for basestock producers who are experiencing lower operating rates, increased
price competition and slim margins.

HUGE CAPACITY ADDITIONS
Taking a closer look at the major capacity additions, China
had brought around 2.1 million metric tons of new basestock
capacity on stream by the end of 2018, primarily accounted
for by independent basestock producers. Around 1.8-1.9 million metric tons of Group II/III/III+ capacity is on the way
in China over the next few years; all of it will be destined for
the merchant market. It looks likely that the nation's capacity
will exceed 8 million metric tons per year (excluding naphthenic basestocks and re-refined oil) by the end of 2019. This
would put it just short of the U.S., which is the global leader,

RISE OF MERCHANT MARKETERS
The increase in supply over the past 10 years has forced
basestock manufacturing to move from a vertically integrated model, mainly serving in-house requirements, to
one that is now led by merchant marketers. Looking ahead,
this is a trend that is expected to continue as the number
of independent lubricant blenders and marketers across the
world grows.
Forecasts suggest that of the total 5 million tons of new
basestock capacity expected by 2028, 80%-85% is likely to
be destined for the merchant market.

In an overcrowded global basestock market, producers
and merchants need to understand the wide-ranging
factors that drive customer buying decisions to ensure
they make the final cut in the supplier selection process.

24

OCTOBER 2019

| COMPOUNDINGS | ILMA.ORG


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ILMA Compoundings – October 2019

Table of Contents for the Digital Edition of ILMA Compoundings – October 2019

LETTER FROM THE PRESIDENT
LETTER FROM THE CEO
INSIDE ILMA
WHAT’S COMING UP
NEW MEMBERS
INDUSTRY RUNDOWN
In the Know
International Insight
Market Report
THE ART OF APPRENTICESHIPS
SPEAKING A DIFFERENT LANGUAGE
ANNUAL MEETING SPEAKER SPOTLIGHT
BUSINESS HUB
COUNSEL COMPOUND
WASHINGTON LANDSCAPE
IN NETWORK
Member Connections
Cross Connections
PORTRAIT
ILMA Compoundings – October 2019 - Cover1
ILMA Compoundings – October 2019 - Cover2
ILMA Compoundings – October 2019 - 1
ILMA Compoundings – October 2019 - 2
ILMA Compoundings – October 2019 - 3
ILMA Compoundings – October 2019 - 4
ILMA Compoundings – October 2019 - LETTER FROM THE PRESIDENT
ILMA Compoundings – October 2019 - 6
ILMA Compoundings – October 2019 - LETTER FROM THE CEO
ILMA Compoundings – October 2019 - 8
ILMA Compoundings – October 2019 - 9
ILMA Compoundings – October 2019 - INSIDE ILMA
ILMA Compoundings – October 2019 - 11
ILMA Compoundings – October 2019 - WHAT’S COMING UP
ILMA Compoundings – October 2019 - 13
ILMA Compoundings – October 2019 - 14
ILMA Compoundings – October 2019 - NEW MEMBERS
ILMA Compoundings – October 2019 - INDUSTRY RUNDOWN
ILMA Compoundings – October 2019 - 17
ILMA Compoundings – October 2019 - 18
ILMA Compoundings – October 2019 - In the Know
ILMA Compoundings – October 2019 - International Insight
ILMA Compoundings – October 2019 - 21
ILMA Compoundings – October 2019 - 22
ILMA Compoundings – October 2019 - 23
ILMA Compoundings – October 2019 - Market Report
ILMA Compoundings – October 2019 - 25
ILMA Compoundings – October 2019 - THE ART OF APPRENTICESHIPS
ILMA Compoundings – October 2019 - 27
ILMA Compoundings – October 2019 - 28
ILMA Compoundings – October 2019 - 29
ILMA Compoundings – October 2019 - 30
ILMA Compoundings – October 2019 - 31
ILMA Compoundings – October 2019 - SPEAKING A DIFFERENT LANGUAGE
ILMA Compoundings – October 2019 - 33
ILMA Compoundings – October 2019 - 34
ILMA Compoundings – October 2019 - 35
ILMA Compoundings – October 2019 - 36
ILMA Compoundings – October 2019 - 37
ILMA Compoundings – October 2019 - ANNUAL MEETING SPEAKER SPOTLIGHT
ILMA Compoundings – October 2019 - 39
ILMA Compoundings – October 2019 - BUSINESS HUB
ILMA Compoundings – October 2019 - 41
ILMA Compoundings – October 2019 - 42
ILMA Compoundings – October 2019 - 43
ILMA Compoundings – October 2019 - COUNSEL COMPOUND
ILMA Compoundings – October 2019 - 45
ILMA Compoundings – October 2019 - 46
ILMA Compoundings – October 2019 - 47
ILMA Compoundings – October 2019 - WASHINGTON LANDSCAPE
ILMA Compoundings – October 2019 - 49
ILMA Compoundings – October 2019 - Member Connections
ILMA Compoundings – October 2019 - 51
ILMA Compoundings – October 2019 - Cross Connections
ILMA Compoundings – October 2019 - 53
ILMA Compoundings – October 2019 - 54
ILMA Compoundings – October 2019 - 55
ILMA Compoundings – October 2019 - 56
ILMA Compoundings – October 2019 - 57
ILMA Compoundings – October 2019 - 58
ILMA Compoundings – October 2019 - 59
ILMA Compoundings – October 2019 - PORTRAIT
ILMA Compoundings – October 2019 - Cover3
ILMA Compoundings – October 2019 - Cover4
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