MUMBAI, India – The Indian market has undergone a large shift in recet years toward API Group II and III base stocks, and with the country’s upcoming transition towards stricter automobile emissions standard, Group III offers an attractive proposition for lube formulators, an industry insider said.
Suppliers of both Group II and Group III originally viewed India as a large market where they could place barrels even if technical demand in the market didn’t require oils of that quality. But those oils are offering technical advantages such as higher viscosity index and the ability to formulate engine oils that help reduce emissions of air pollutants, a senior executive with the United Arab Emirates-based GP Global Group said at the Asia, Middle East and Africa Bitumen and Base Oil Conference, organized by Petrosil Group here in July.
Group II and III demand in India should accelerate with the country’s impending shift to Bharat Stage VI automobile emissions standard from April 2020, said Sudip Shyam, global head of base oils and lubricants business development at GP Global. BS VI is equivalent to the European Union’s Euro 6 standard and is expected to force engine design changes that require more advanced engine oils.
“Group III in the last few years has become a commercially attractive proposition and more so, with BS VI,” Shyam told attendees at the conference.
The market for high quality base oils and synthetics in India, the world’s third-largest lubricant market after China and the United States, is expected to expand as automakers strive to meet tougher vehicular emissions caps and develop technologies for better fuel economy. India is skipping the BS V standard to jump directly from BS IV to BS VI in order to tackle the nation’s worsening air pollution.
Shyam said opportunity for Group I will still exist but that it will be largely price driven as many Indian blenders swing between Group I and II, depending on the actual cost that they are able to negotiate with suppliers.
“There’s a huge gap between demand and production, which brings great opportunities for global suppliers,” including refiners and traders, he said. India imports almost three times as much base oil as it produces, making it a go-to destination for suppliers, Shyam said. The country is estimated to have imported more than 3 million metric tons of base oil in 2018, while the production was likely at 1 million tons, he added. South Korea, Singapore, the U.A.E., the United States and Saudi Arabia accounted for almost 89 percent of those imports.
“Group II and III accounted for 75 percent of the country’s imports, which basically reflects the switch towards usage of premium base oils and the quality of lubricants,” Shyam said.
He noted that India is also exporting large quantities of specialties as well as finished lubricants. “A lot of light products coming from South Korea, for example, are re-processed and exported as specialties as well as finished lubricants,” he explained.
A base oil production deficit also exists in the broader South Asia region, which covers Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, India, Pakistan and Sri Lanka.
“There are producers of base oils only in India and Pakistan,” he noted. The regional capacity is slightly above 1.4 million t/y, with India accounting for 85 percent and Pakistan the rest. The share of Group I in total capacity is almost 59 percent in the region, followed by Group II and a small amount of Group III.
Economic growth in India slowed recently, but Shyam called it a temporary blip, maintaining that prospects are solid thanks to the government’s emphasis on infrastructure and rural development. Demographic trends in the nation of 1.3 billion people look extremely favorable for the next 20 to 30 years, he said, adding that there’s sustained availability of quality manpower at relatively lower costs.
Current gross national product is estimated at about U.S. $2.7 trillion, and the government aims to reach U.S. $5 trillion by fiscal year 2024-25, Shyam said. The key growth drivers will include development of industrial corridors, coal mines, auto hubs and major ports, he noted.
The growth of power industry, manufacturing, steel, cement, construction and mining sectors will boost the demand for lubricants, he said. “All these industries are extremely lubricants intensive, which provides a lot of opportunities for growth.”
India consumes an estimated 2.25 million t/y of finished lubricants, including 1.5 million t/y of automotive lubes and 750,000 of industrial lubes, according to Shyam. That does not include an estimated 1.3 million t/y of specialties produced for local consumption and export.
“We expect the market in India to still grow at about 4.1 percent to 4.3 percent, largely from [growth in] motorcycle oils, heavy-duty engine oils, premium lubes and greases as well as specialties,” he projected.
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