Changing Global Landscape for Base Oils
2nd Asian Industrial Lubricants Conference 12-13 November 2019 Singapore
Izham Ahmad Senior Editor ICIS
www.icis.com 1 Agenda
Fundamentals affecting base oils market Crude trend US-China trade war
Industrial lubricants in the base oils world Demand, usage Base oils price trends
Global base oils supply and demand China, India base oils demand
Changing dynamics of Group I and Group II base oils Iran Group I exports IMO 2020 Growth of Group II Rising influence of Middle East base oils
www.icis.com 2 2018-2019 – Crude lower as weaker economic outlook weighs on market sentiment
www.icis.com 3 Changes in the market structure in 2019
www.icis.com 4 Oil market tighter in H2 2019 but oversupply expected in H1 2020
Supply and Demand Balance 2014-2019 (Source: IEA, EIA) 104 66
102 64
100 62 98 60 96 58
94 bbl/day 56
92 of Supply Days 90 54 88 52 86 50
Total Supply Total Demand OECD Commercial Stocks - Days of Supply
www.icis.com 5 Growing political and economic rivalry between US and China
US-CHINA
TRADE WAR
Source: USTR, Chinese Ministry of Commerce www.icis.com 6 China drives global economic growth
China remains the main engine of global economic growth Trade, debt and economic reform remain longer-term issues China will overtake the US as the world’s largest economy Emphasis on “when” rather than on “whether” Global asset portfolios will rebalance towards Chinese markets to reflect China’s place in the world economy China’s strong growth prospects for investors yearning for yield Trade dispute a catalyst because it will accelerate the diversification away from US market www.icis.com 7 Industrial lubricants in the base oils world
www.icis.com 8 Global base oils demand segments
• Transportation sector still the biggest segment of the base oils market
• Likely to remain so in coming years
• Industrial oils segment is second biggest
• Limited new technological changes/applications
Source: industry www.icis.com 9 Common base oils applications in industrial lubricants
Group I • Most commonly used Group II • Gears Naphthenics • Metalworking, pumps
• Higher VI Group III • Extreme temperature applications Group III+ • More specialized usage
www.icis.com 10 ICIS Group I price trends
Group I Iran prices Group I Asian prices 850.0 900.0
800.0 850.0
800.0 750.0
750.0 700.0 700.0 650.0
650.0 $/tonne $/tonne 600.0 600.0 550.0 550.0
500.0 500.0
450.0 450.0
400.0 400.0
16-Jul-2018 05-Jul-2018 26-Jul-2018 11-Jul-2019 01-Jul-2019 18-Jul-2019
11-Jan-2018 17-Jan-2019 08-Jan-2018 25-Jan-2018 09-Jan-2019 28-Jan-2019
07-Jun-2018 20-Jun-2019 07-Jun-2018 27-Jun-2018 12-Jun-2019
18-Oct-2018 03-Oct-2019 24-Oct-2019 17-Oct-2018 02-Oct-2019 21-Oct-2019
05-Apr-2018 12-Apr-2019 26-Apr-2018 11-Apr-2019 11-Apr-2018 30-Apr-2018
01-Feb-2018 22-Feb-2018 06-Sep-2018 27-Sep-2018 07-Feb-2019 28-Feb-2019 12-Sep-2019 13-Feb-2018 11-Sep-2018 28-Sep-2018 18-Feb-2019 13-Sep-2019
20-Dec-2018 12-Dec-2018
16-Aug-2018 01-Aug-2019 22-Aug-2019 02-Aug-2018 23-Aug-2018 06-Aug-2019 27-Aug-2019
08-Nov-2018 29-Nov-2018 05-Nov-2018 23-Nov-2018
15-Mar-2018 21-Mar-2019 05-Mar-2018 22-Mar-2018 07-Mar-2019 26-Mar-2019
17-May-2018 02-May-2019 23-May-2019 18-May-2018 03-May-2019 23-May-2019
Base Oils Group I SN150 FOB Iran USD/tonne Base Oils Group I SN500 FOB Iran USD/tonne Base Oils Group I SN150 FOB Asia USD/tonne Base Oils Group I SN500 FOB Asia USD/tonne
www.icis.com 11 ICIS Group II price trends
Base Oils Group II 500N CFR UAE Base Oils Group II 500N FOB/CFR NE Asia 900.0 900.0
850.0 850.0
800.0 800.0 750.0
750.0 700.0
700.0 650.0
$/tonne $/tonne 600.0 650.0
550.0 600.0 500.0
550.0 450.0
500.0 400.0
11-Jul-2019 25-Jul-2019 20-Jul-2018 19-Jul-2019
03-Jan-2019 17-Jan-2019 31-Jan-2019 12-Jan-2018 11-Jan-2019
27-Jun-2019 13-Jun-2019 08-Jun-2018 29-Jun-2018 07-Jun-2019 28-Jun-2019
18-Oct-2018 04-Oct-2018 03-Oct-2019 17-Oct-2019 31-Oct-2019 12-Oct-2018 11-Oct-2019
11-Apr-2019 25-Apr-2019 06-Apr-2018 27-Apr-2018 05-Apr-2019 26-Apr-2019
06-Sep-2018 20-Sep-2018 14-Feb-2019 28-Feb-2019 05-Sep-2019 19-Sep-2019 02-Feb-2018 23-Feb-2018 21-Sep-2018 01-Feb-2019 22-Feb-2019 20-Sep-2019
13-Dec-2018 14-Dec-2018
09-Aug-2019 09-Aug-2018 23-Aug-2018 08-Aug-2019 22-Aug-2019 10-Aug-2018 31-Aug-2018 30-Aug-2019
23-Nov-2018 01-Nov-2018 15-Nov-2018 29-Nov-2018 02-Nov-2018 01-Nov-2019
14-Mar-2019 28-Mar-2019 16-Mar-2018 15-Mar-2019
09-May-2019 23-May-2019 18-May-2018 17-May-2019
www.icis.com 12 Global base oils supply and demand
www.icis.com 13 Global Base Oils Demand: Asia Dominates Last Decade: Current Demand Profile: ~ 37m tonnes Incremental Demand, million tonnes 6 North Middle East America 4 & Africa South 2 America 0
-2
-4
Europe & -6 F.USSR
Asia
Growth in Asian and developing economies barely compensated for loss of demand in mature markets Sources: ICIS Supply & Demand Database, ICIS Analytics www.icis.com 14 Global Base Oils Capacity vs Demand: Regional Dimensions 2017 (million tonnes)
25 Asia Group V (Naph) 20 North America Group IV 15 EU & F.USSR Group III 10 ME & Africa South America Group II 5 Group I 0 Capacity Capacity Capacity Capacity Capacity Demand Demand Demand Demand Demand Regional imbalances are evident for all the key groups, generating trade flows
NB: 2017 Middle East capacity count is affected by plant closures (GTLs…), delays, etc.
Sources: ICIS Supply & Demand Database, ICIS Analytics www.icis.com 15 Could demand be affected by slower auto sales?
• China is world largest automobile market
• China’s vehicle sales numbers 2018 vs 2019
• Vehicle sales are slowing
• China Mulls Goal of 60% of Auto Sales to Be Electric by 2035: Bloomberg News
www.icis.com 16 China’s base oils demand analysis
million tonnes China’s base oils apparent consumption China’s base oils consumption 9 10% fell to 8.08m tonnes in 2018 6.2% 5.4% 5.0% 5% 6 Downstream lubricants sector
0% affected by decline in industrial
3 and manufacturing performance -4.2% -5% – reduced Group I demand -8.1% 0 -10% Group II/III demand stable to soft 2014 2015 2016 2017 2018 on lower demand for automotive Consumption % change lubricants due to falling car sales
Source: ICIS Supply & Demand Database
www.icis.com 17 India’s car sales have been slowing • Base oils demand from India’s passenger car segment not encouraging
• Year-on-year car sales have been slowing
• Domestic monthly sales also showing signs of softening
www.icis.com 18 India’s base oils imports have not shown steady increases
India's base oils imports 2017-2019 300,000
250,000
200,000
150,000 In tonnes In
100,000
50,000
- January February March April May June July August September October November December
Source: ICIS Supply & Demand Database 2017 2018 2019
www.icis.com 19 Group I & II base oils’ changing dynamics
www.icis.com 20 Global base oil share by group Group I base oils still accounts for largest share of global base oils demand
Source: Industry www.icis.com 21 Group I share shrinks, Group II increases: 2018 vs 2025 2018 2025 100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0%
Group I Group II Group III Group IV Group V (Naph) Group I Group II Group III Group IV Group V (Naph)
Group II becomes a major grade on a global basis but different regional profiles will persist
Sources: ICIS Supply & Demand Database, ICIS Analytics
www.icis.com 22 US sanctions on Iran have had some impact
Source: ICIS Supply & Demand Database www.icis.com 23 Iran’s base oils exports 2017-2018
2017 2018
Source: ICIS Supply & Demand Database www.icis.com 24 Iran’s base oils exports Jan-Apr 2019
Source: ICIS Supply & Demand Database www.icis.com 25 Group I base oils margins will be reduced post IMO 2020
Grp I Margins Pre IMO Grp I Margins Post IMO
$/Tonne Product $/Tonne Product $/Tonne
VGO Energy / OPEX Co Prodcut Credit Margin Grp I VGO Energy / OPEX Co Prodcut Credit Margin Grp I
Sources: ICIS Supply & Demand Database, ICIS Analytics www.icis.com 26 Asia capacity expansions mainly in Group II and Group III Europe ExxonMobil Rotterdam Hebei Feitian Existing GII: 100kta New GII: 1mta Hengli Petrochemical Expanded GII: 350kta Start-up: Feb 2019 New GII/III: 540kta Start-up: Sep 2019 Start-up: Apr 2019 Shanxi Lu’an Shandong Shida Changsheng New GIII+: 600kta China New GII: 300kta IOCL Panipat Start-up: 2019 New GII: 450kta Start-up: Mar 2019 Shandong310 Qingyuan571 Shandong Kaitai New GIII: 100kta1,815 Existing GII: 600kta Start-up: 2025 Petrochemical Expanded GII: 1.4mta New GII: 150kta India Start-up: Mar 2019 Start-up: Mar 2019
IOCL Haldia Hainan Handi Sunshine HPCL Mumbai Existing GI/II: 250kta Existing GII: 300kta Existing GI/II: 450kta390 Additional GIII: 100kta Expanded GII/III: 1mta Additional GII/III: 150kta Start-up: 2020 or beyond Start-up: H1 2020 Start-up: 2020 or beyond Petronas Melaka Existing GIII+: 330kta 490 Additional GIII+: 250kta Malaysia • Not all projects may proceed, although most likely Start-up: 2023 • China’s operating rates uncertain ExxonMobil Singapore Existing GI: 650kta • ExxonMobil Singapore made final investment Existing GII: 1.6mta Singapore decision to go ahead with Phase II expansion Phase I additional GII: 100kta Phase I start-up: May 2019 Phase II additional GII: 1mta Phase II start-up: 2023 Sources: ICIS Supply & Demand Database www.icis.com 27 Middle East has become major player in Group III/III+
Middle East base oils production capacities
Group III/Group III+
Group II
Group I
0 500,000 1,000,000 1,500,000 2,000,000 2,500,000
Saudi Aramco/Luberef Saudi Aramco/Luberef ADNOC BAPCO/Neste (Bahrain Lube Oil Co) Shell Pearl GTL Sepahan Oil Company Iranol Behran Oil Pars Oil
Source: ICIS Supply & Demand Database, industry www.icis.com 28 Changing dynamics in India’s base oils imports
India's base oils imports by origin India's base oils imports by origin 2017 TAIWAN, PROVINCE OF 2018 CHINA BAHRAIN AUSTRALIA BAHRAIN GREECE TAIWAN, PROVINCE OF SWEDEN QATAR 1% 1% 1% 1% 1% CHINA 2% 1% BELGIUM 1% 2% SPAIN 3% SPAIN 4%
UNITED STATES UNITED STATES 10% 9%
SOUTH KOREA SAUDI ARABIA 45% SINGAPORE SOUTH KOREA 12% 13% 50%
SINGAPORE UNITED ARAB EMIRATES 12% 18%
UNITED ARAB EMIRATES 13%
Source: ICIS Supply & Demand Database www.icis.com 29 India’s base oils imports by origin Jan-Aug 2019
TAIWAN, PROVINCE OF CHINA 3% • India’s 2019 data show trend SPAIN OMAN 4% 1% BELGIUM continuing 1% BAHRAIN 2% UNITED STATES • In Jan-Aug 2019, Middle East 10%
SOUTH KOREA origin base oils accounted for 44% UNITED ARAB EMIRATES 25% of top 10 importers into 11% India
SAUDI ARABIA SINGAPORE 11% 13% • Middle East import volume second only to South Korean material
Source: ICIS Supply & Demand Database www.icis.com 30 China’s base oils imports Jan-Aug 2019
MALAYSIA UNITED ARAB EMIRATES 2% INDONESIA RUSSIAN FEDERATION 3% 2% 1% • China’s 2019 year to date JAPAN 4% QATAR import data again suggest 5% THAILAND continuing trend SOUTH KOREA 5% 35% • TAIWAN, PROVINCE OF South Korea, Singapore main CHINA 17% sources of base oils imports
SINGAPORE 26% • Middle East origin base oils accounted for 8% of top 10 base oils importers
Source: ICIS Supply & Demand Database www.icis.com 31 South Korea base oils exports by country
2017 Total exports: 4.534mt 2018 Total exports: 4.668mt Imports as a proportion Imports as a proportion Indonesia of exports: 10.0% of exports: 9.4% Others 3% Vietnam Others UAE 10% 12% China 2% China 3% 22% Indonesia 21% The Netherlands 3% 3% The Netherlands Belgium 3% 4% Belgium 4% Thailand 5% Thailand 5%
Singapore India India Singapore 8% 19% 20% 7%
Japan Japan 8% 8% USA USA 15% 15%
Source: ICIS Supply and Demand Database China remains South Korea’s top export nation but India is catching up Group II/III exports to UAE fell on new Middle Eastern capacities www.icis.com 32 What lies ahead
www.icis.com 33 Future implications for industrial lubricants
Industrial lubricant makers may need to review base oils origins
Group I segment to slowly shrink but not disappear Group II to replace Eyes on China, India
Middle East share of global Group II/III markets to rise Asian producers’ market share to decrease
www.icis.com 34 ICIS Asia & Middle East Base Oils Team
Middle East Asia Pacific Izham Ahmad Matthew Chong [email protected] [email protected]
ICIS Consulting Michael Connolly [email protected]
Crude Analysis James Dennis Sophie Udubasceanu [email protected] [email protected]
www.icis.com 35 Thank you for your time
www.icis.com 36