Speakers at Meet the Market South America International Conference said the increase represented a rebound from recent declines in Brazils base oil imports. Base oil imports have been increasing dramatically since last year when ANP reported the lowest result in eight years,said Claudio Ishihara, director of Brazils Ministry of Mines and Energy.

Brazil imports significant volumes of base stocks both because domestic supply is far short of demand and because almost all of its capacity is for API Group I base stocks. Modern lubricants increasingly require the use of Group II and III base stocks.

The United States is dominating imports this year, according to Pedro Nelson Belmiro, director of Onze, the local publishing company that organized the event. The U.S. supplied 75.6 percent of imports in the first five months of the year, followed by South Korea (8.2 percent), Malaysia (5.8 percent), and Switzerland (3.8 percent).

Belmiro said there is a good chance the country will not sustain the first five months pace of base oil production and importation. Base oil supply exceeded finished lubricant production during the period by 89,000 tons, suggesting that base oil inventories swelled significantly.

State-owned oil company Petrobras, which operates three base oil plants in Brazil, supplies approximately two thirds of the Group I base oil that the country consumes, said Claudio Silva, executive director of local consultancy firm Lubekem. ExxonMobil is the second-largest supplier. Local rerefiner Lwart is the largest Group II supplier, with 40 percent of consumption, followed by Chevron, ExxonMobil and Motiva.

As for Group III, there are no Brazilian companies making this stock, but Neste and Petronas supply the biggest shares to Brazil, followed by SK Lubricants, S-Oil, Shell, and others, he said.

Petrobras also supplies 55 percent of the naphthenic base oil consumed in the country. Other suppliers include Nynas and Ergon.

Silva noted that Brazils base oil capacity is failing to keep pace with the global shift toward Group II and III stocks. Lwarts Group II plant in Lencois Paulista accounts for 10 percent domestic capacity, and the rest is Group I and naphthenic.

Consider 41 percent of global supply is Group I, 36 percent is Group II, 13 percent is Group III and 10 percent is naphthenic, he said.

Among the challenges for the Brazilian market, Belmiro said, is a shortage of warehousing capacity and distribution facilities and the need to expand existing refineries or even build new ones. Although Petrobras is government-owned and cash-strapped, he suggested that private investment could help address the needs.

A Petrobras official attending the event, internal manager for lubes and paraffins Nelson Paim, affirmed that the company is willing to consider funding from outside sources. Although nothing concrete has been prepared, Petrobras is open to the idea of partnering up with an investor, he said.