Changing Basestock Supply Landscape and the Growing Significance of Merchant Marketers

The global lubricant basestock market has undergone a structural change over the past decade. The change, initially triggered by the need for high-performance basestocks, was further abetted by the enormous new basestock capacity created worldwide. Simultaneously, finished lubricant demand growth has been significantly outpaced by new capacity additions. This has had several implications on the market including consistent lower average operating rates, constrained margins, wider trade flows, and rapid transition towards better quality lubricants.

An interesting trend on the basestock market that has emerged during this period has been the growing role of merchant suppliers of basestocks, globally. Simultaneously, the role of vertically integrated basestock plants used for in-house lubricant blending diminished. An assessment of the nature of basestock capacity reveals that about 30% of the global paraffinic basestock capacity in 2017 was primarily meant for in-house consumption. This proportion reduced drastically to 22% in 2017. Considering the new capacity being planned in the future, this share is further slated to drop to 18% by 2027.

The divergence of supply and demand trend lines increases the surplus and makes the basestocks market a buyers’ market. Increasing lubricant quality and proliferation of specifications also means that blenders require a wide variety of basestock to blend their products. Often a blender would require a wide range of basestocks and grades to cater to a wide range of applications. As a result, vertical integration between basestocks manufacturing and lubricants blending is losing salience and buyers prefer sourcing basestocks from merchant market per their needs.

As this happened, basestock purchase criteria and decision-making process also have undergone a change. Almost a decade back, when high-performance basestocks’ availability was limited, product quality was often the key determining criteria for supplier selection. However, as the number of merchant suppliers of such high quality basestocks grew, new criteria for supplier selection have also assumed significance.

A lubricant blender with global operations with homogenous formulations across the world prefers basestock suppliers with a global reach. This makes a widespread production base and logistic infrastructure of a basestock supplier an important attribute in supplier selection decision by blenders. The stricter performance requirement and growing number of approvals mandates that a basestock must carry a wide basket of such approvals. Other attributes, such as commercial terms, price consistency, product quality consistency, and customer support, among others, are increasingly gaining significance in the decision-making process. The relative significance of various attributes in supplier selection process may vary from region to region and type of blenders (big vs small, blenders of specialty products vs blenders of all types of products).

It is imperative for basestock suppliers to closely understand this complex changing decision-making process. Kline’s new study, Lubricant Basestocks Merchant Supplier Assessment, will help provide insights on what level of significance is attached to various attributes while selecting a basestock supplier. It plans to cover a wide range of lubricant blenders (small, mid and large scale; specialty vis-à-vis regular products) across the key markets around the world. It will also help identify top performing suppliers on these attributes in the eyes of buyers. The study also aims to identify unmet requirements of blenders, key issues faced by them along with ways to address these issues and understand from blenders’ perspective what key grades and basestocks do they anticipate growing in demand in future. Brief profiles on leading merchant marketers of Group I, II, and III basestocks will be included, which will help blenders assess the level of infrastructure of various suppliers and assess if these suppliers can help meet their requirements.

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