The improving quality of finished lubricants and the burgeoning supply of high quality basestocks continue to create greater pressure on Group I basestocks to exit the market in the face of stagnant overall demand. In 2015, Group I basestocks account for less than half of the global basestock demand, down from over two-thirds a decade earlier, according to the recently published Global Lubricant Basestocks: Market Analysis and Opportunities report.
Passenger car motor oils formulation changes are driven by improvements in fuel economy, increasing engine oil durability, and maintaining compatibility with emission control devices and biofuels. The high viscosity index, low volatility, and low sulfur content has resulted in the reduced use of Group I and increased use of Group II and Group III.
According to Anuj Kumar, a Project Manager in Kline’s Energy Practice, “The need to improve fuel economy continues to drive the use of lower-viscosity-grade oils. This trend, initially strong in North America and Western Europe, has started to catch on in other markets as well. To ensure that these low-viscosity oils continue to provide long drain intervals, they need to be made more durable, which results in more stringent NOACK limits.”
As a result of the stringent NOACK limits, the use of Group II-based formulations is limited in many markets. Group II and II+ basestocks are left out of the synthetic oil market, while in most markets, Group III basestocks are often approved as they meet the standards required for synthetic formulations, shifting demand away from Group II towards Group III basestocks.
“The shift will continue to be accelerated by the growing use of synthetics and despite overall flat demand in finished lubricants, the real change will occur within the basestock types,” adds Kumar. “Those basestocks that satisfy the requirements set forth by regulations and OEMs will see the most growth.”
Within the heavy duty motor oil (HDMO) market, the demand is primarily shifting towards Group II basestocks as the market predominantly consumes SAE 15W-40 grades. There is small but growing demand for lighter grades in North America and Western Europe. However, globally, the demand for these light viscosity grades is quite small. As a result, demand for light grades of basestocks is limited in the HDMO market.
Within the industrial lubricant market, applications that require high viscosity and solubility continue to demand Group I basestocks. In other applications, where there is no technical limitation on the use of Group II and Group III basestocks, their use is increasing, and these basestocks compete against Group I.
The uncertain economic outlook has dampened the finished lubricant demand growth (and hence for basestocks), but the project pipeline for new basestock capacity remains strong. This surplus capacity is creating pressure on high cost basestock plants to rationalize. This has resulted in a series of basestock capacity closures in the last three years. The scenario of continued excess capacity, with a slower demand growth outlook, will cause more capacity rationalizations in the future.
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These findings and more are available in the recently published Global Lubricant Basestocks: Market Analysis and Opportunities report.