When Abu Dhabi National Oil Co. opened its new base stock plant in Ruwais, United Arab Emirates last year, it added another large slug of API Group III capacity to a market already saddled with a large global surplus of that category of oils. Thereafter, market sources reported, the company began supplying its stocks to the United States, Europe and India – offering bargain prices as it sought to carve out market share.
India has the advantage of being a much closer destination for Adnoc, but its demand for Group III is in its infancy compared to the other two regions. The refiners sales into India may indicate something about the difficulties it faces entering an overstocked market. Industry sources say that such sales could also help accelerate the nations Group III uptake.
Adnoc declined to answer questions for this article, but an official with one lubricant blender in India confirmed making direct purchases from the Emirati refiner, which did not produce base stocks before the Ruwais plant opened. The official, who spoke on condition that his company not be identified, said it bought 14,000 metric tons of Group III from Adnoc during the second half of last year.
Group III oils have higher viscosity index than Group I and II, meaning that they afford greater oxidative stability that translates into longer life in some finished lubricants applications. As a result, Group III demand has risen significantly in developed markets such as the U.S. and western Europe, though it tends to be lower in developing countries.
Indias finished lubricant market uses primarily Group I and Group II base stocks, with Group III being a niche, said Anuj Kumar, a project manager in consultancy Kline & Co.s energy practice. Currently, Group III accounts for 3 percent to 4 percent of the total base stocks used for lubricant applications in India, he noted.
The lack of Group III demand in India is partly due to a mismatch of product qualities. Most of the stocks produced by Group III plants fall into the 3 centiStoke, 4 cSt and 6 cSt viscosity grades – lighter than the oils preferred, for example, for heavy-duty motor oils and industrial lubes in India.
In the passenger car motor oil segment, Kumar noted, demand is growing in India for SAE 5W-30 and SAE 5W-40 grades and for synthetic brands – all of which are more common uses for Group III.
Hence, from a future demand perspective, the Group III base stocks will witness growth on the back of growth in lighter grades of PCMO, Kumar noted.
Nevertheless, sources agree that pricing remains an obstacle to greater Group III demand in India. Kumar said that higher prices of Group III, compared to Group II and Group I, may act as a hindrance to the switchover, but competitive pricing of Group III grades will make their use attractive among blenders. Savita Oil Technologies Ltd.s Kishor Sankhe agreed. He said that suppliers would face challenges if they offer Group III at higher prices, but buyers would lift the material if they get Group III oils at Group II prices.
The demand for Group III oils is very low because of higher prices. Whenever people dont find Group II, they take group III as a substitute, said Sankhe, vice president of materials and supply chain. But if Group II is available then people will not touch Group III unless it matches the price.
Thats why some say that bargain rates could accelerate the uptake of Group III in India. As a new supplier on the market, part of Adnocs strategy seems to be to compete on price. Market sources have reported 4 cSt and 6 cSt Group III from Ruwais being shipped to Indias west coast for $545 per ton. By comparison, prices in Europe for the same oils were reportedly $660/t, even after recent markdowns.
The question, observers say, is whether these prices are low enough to entice Indian buyers to purchase significant volumes.
There are openings for some players to make the move across to Group III blends, but this will not be universal, nor will it happen overnight. Price will be a major factor in the uptake of Group III, said Ray Masson, director of London-based petroleum products trader and broker Pumacrown Ltd. He noted that this will take some time to evolve, but if prices are competitive – as they are now – then operators will make the switch sooner rather than later.
Adnoc is by no means the only Group III supplier in India, though there is no Group III capacity among domestic refiners. Neste supplies cargoes of oil produced at Bapcos four-year-old plant in Sitra, Bahrain, and South Koreas SK Lubricants and S-Oil also export to India, according to Masson. Moreover, he added, additional Asian producers of Group III could begin targeting India in the foreseeable future, including companies with new plants or expansions that are in the pipeline.
Introduction of more Group III capacity could put more downward pressure on prices, which further stimulate the uptake of that grade in India.