18 June 2013

What's happening on the base oil market in Asia?

Written by Ulla Kotila
Published in Oil products

I've just moved to Singapore for a 6 month assignment to get to know our operations and customers in this beautiful and lively region. The weather is hot and humid, the tastes are great in the local food courts and the variety of restaurants overwhelms me. Who wouldn't love this?!

The timing to come here early summer was good in a sense that I get to see everyone at once at the ICIS Asian base oils and lubricants conference . It will take place on the 26th and 27th of this month at the Marina Bay Sands which by the way is a beautiful location.

When looking at the agenda it is quite typical for these type of conferences -local economics, market demand outlook, some automotive trends and new specifications in the region.

China's economy has been growing steadily despite the hick ups in the economies in the west. However, now it seems that the China's economy is running out of steam. The latest speculations are based on the May export figures released early this month. I also read in today's paper of the difficulty of the graduate students to find jobs due to the slowdown in the economy. There are serious doubts about the winning pace to continue.

When thinking of base oil and lubricant market over here, the situation is also challenging. The demand, surprisingly, seems to be relatively firm - but the base oil margins have seen better days. More and more western lubricant blenders establish their operations in China as do the OEM's and the additive companies. Nancy DeMarco points out in Lube Report article on 12th June that refiners in Asia have continued to grow their share of the global group II and III supply. She says that South Korea holds 41 percent of the world'd group III capacity and China which didn't make any group III's in 2011 makes now more than North America. The demand is growing but so is the supply. Can the market absorb all the new volume?

What's next? Does the future look like what the consultants tell us? Or will there be something new behind the corner? Maybe we'll get new insights at the Singapore conference. There will be a bunch of us from Neste Oil attending the conference, so I hope to see you there!

Ulla Kotila
Market Development Specialist, Base Oils