Will Bright Stocks Continue to be ‘Collateral Damage’ of Group I Plant Closures?

LITTLE FALLS, NJ, December 14, 2006 – As the global supply of API Group I lubricant basestocks continues to wane throughout this decade and the next, some lubricant suppliers will also see a key raw material used in the formulation of some of their finished lube products become increasingly scarce.

While a shortfall of bright stocks will lead to a price increase for these materials in the short term, suppliers of heavy synthetic basestocks are preparing to fill the bright stock supply gap, and a newly published study by Kline & Company examines the future of the global market for bright stocks and their proposed substitutes.

“Many Group I refineries have already become obsolete, since developed countries can no longer use Group I basestocks in automotive lubes due to stringent environmental regulations and fuel economy requirements. And because bright stocks are almost entirely produced from conventional Group I refineries, supply will fall more quickly than demand,” says Geeta Agashe, director of the Petroleum & Energy practice for Kline’s research division.

Global supply of bright stocks—so named for their bright orange or reddish orange color—fell by 8% from 1995 to 2005, and as more conventional Group I plants are rationalized, bright stock supply will continue to fall by more than 10% through 2015, according to THE GLOBAL BUSINESS OUTLOOK FOR BRIGHT STOCKS, 2005-2015.

Supply shortfalls may be mitigated somewhat by expansions of existing Group I facilities and improved plant efficiencies in developing regions like Asia, but Agashe notes that none of the new refineries to be built worldwide will be Group I refineries—even in the regions where demand for bright stocks will remain the strongest.

Demand for bright stocks in automotive applications is also expected to decline due to the continuing shift from monograde to multigrade engine oils and to fill-for-life gear oils as developing markets continue to expand and fuel economy standards are raised.

Still, bright stock demand will remain steady in many of the niche applications where they see the most use. Marine engine oils, greases, gear oils, hydraulic oils, and metalworking fluids all have a strong appetite for bright stocks because they are very effective in the formulation from a technical and cost standpoint.

“We expect to see increased demand for bright stocks in developing regions for these applications, although this increase will not be as great as the drop in bright stock use for automotive engine oils,” Agashe says. “The result will be a supply shortfall, which will drive bright stock prices up.”

“Increasing prices for a basestock that has already been under supply pressure will create opportunities for suppliers of substitute products,” says Bill Downey, vice president and head of Kline’s Petroleum & Energy consulting practice. “Polyisobutenes seem to be the most cost-effective and widely available synthetic substitute, although high-viscosity PAO and some naphthenic basestocks will likely take up some of the shortfall as well.”

“Suppliers of these products and finished lube formulators need to understand the intricate details of where the supply and demand balance of bright stocks is heading—especially on a regional basis—in order to maximize their opportunities in a changing market segment,” he adds.

THE GLOBAL BUSINESS OUTLOOK FOR BRIGHT STOCKS, 2005-2015 provides a thorough analysis of supply and demand for lubricant bright stocks on a global basis. It presents a forward-looking assessment of what this market sector will look like through 2015, addressing the volume and rate of Group I rationalization, as well as the potential market for substitute product candidates.

For more information on this study, go to www.klinegroup.com/reports/Y604.asp or contact Geeta Agashe at +1-973-435-3484. In Europe, contact Erin Durham at +39-0331-976969.

To learn more about Kline’s customized consulting capabilities in the petroleum and energy fields, contact Bill Downey at +1-973-435-3388.

Established in 1959, Kline & Company (www.klinegroup.com) is a management consulting and market research firm serving the petroleum and energy, specialty chemicals, life sciences, and consumer products industries.

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