Kline’s February Index of Base Stock Production and Re-refining Cash Margins Shows Significant Drop in Conventional Base Stock Profitability
Last month, Kline & Company, a worldwide consulting and research firm serving needs of organizations in the lubricants and base stocks industry, introduced its monthly Base Stock Margin Index ; a characterization of recent cash margin contributions in the U.S. base oil market over the past 24 months.
The Index estimates cash margin contributions associated with U.S. Group II base stock production. It simulates EBITDA before the deduction of corporate SG&A expenses for typical VGO-based virgin base stock plants and RFO-based re-refineries. A more detailed description of the Margin Index can be found in the January release.
“The Index was adversely affected in January by the run on distillates in the second half of the month,” said Ian Moncrieff, who manages Kline’s price forecasting activities. “We saw, for the first time, Gulf Coast prompt low sulfur VGO trading at above ULSD values, while FCC-derived light cycle oils were on par with heating oil. While distillate:VGO premiums have been narrowing structurally, we see last month’s events as unsustainable, which should result in some near term recovery in conventional Group II base oil margins.” Moncrieff continues, “To add to the uniqueness of January’s events, the Index’s re-refining cash margin exceeded that of conventional VGO-based plants for the first time. Finally, the Group II posted prices dropped by $0.15/gallon for light/medium neutrals, and a little more for 600N, reflecting the continuing weakness in the cash markets for base oils.”
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