impact of Covid 19 on basestocks market

Impact of COVID-19 on the Global Lubricant Basestocks Market

Anuj Kumar
Project Manager, Energy
April 2020

impact of Covid 19 on basestocks market

The significant drop in lubricant demand expected in the first half of 2020 and the prospect of a prolonged and weak recovery—all due to the COVID-19 pandemic—has the potential to profoundly transform the basestocks industry.

For a decade, lubricant basestock supply has been characterized by significant surplus capacity. Static basestock demand, and the continuing addition of new capacity, translated into lower capacity utilization and a decline in profitability. Simply put, the basestock industry was in financial difficulty even before 2020. Now, while the COVID-19 pandemic and concurrent drop in crude oil prices has created more short-term pain, it may force some sanity into the industry in the long term.

A sharp decline in basestocks demand

Overall lubricant basestock demand is closely tied to finished lubricant demand, as lubricants account for more than 90% of the basestocks market. At the time of this writing, Kline estimates that global finished lubricant demand could decline by 15% to 30% in 2020 compared to 2019 due to the COVID-19 pandemic and related containment efforts. (See The Impact of the COVID-19 Pandemic on the Global Lubricants Industry.) As a result, overall lubricant basestocks demand is likely to see a similar drop in consumption, though the impact on different API Groups will be different.

With restrictions on people’s movement in lockdown situations, consumer automotive lubricants will be impacted immediately. However, in the event of prolonged lockdowns, significant reductions in demand will be experienced by commercial and industrial lubricant markets as well.

A contraction in the consumer lubricants market is having an immediate impact on demand for Group III/III+ basestocks, especially in markets with higher penetration of high-quality passenger car motor oils (PCMO). For example, the United States and much of Western Europe have lockdown conditions affecting personal mobility and hence PCMO demand. Both regions have a high share of high-quality PCMO blended with Group III/III+ and PAO. Therefore, these basestocks will see the most significant drop in demand. In contrast, due to the typical formulations used in the Asia-Pacific region and in the rest of world, the impact of reducing PCMO demand will be experienced by Group II/II+ and Group I basestocks in these regions.

Since Group II/II+ basestocks are the leading materials used to formulate heavy-duty motor oil (HDMO), a declining commercial segment will have the biggest impact on these basestocks. Of course, there will be regional variations, with North America and Asia-Pacific witnessing much higher declines in Group II/II+ in contrast to other regions that have relatively higher shares of Group I in HDMO formulations.

Demand for other automotive products including gear oils and automatic transmission fluids (ATF) is more dependent on factory-fill (driven by automotive production) than service-fill (driven by automotive population). Amid severe lockdown conditions, during which automobile prduction is halted, demand for these products is impacted more severely than engine oils. Decline in demand for ATFs will primarily impact demand for Group III/III+ and PAOs as these basestocks are used to blend fill-for-life ATF products.

A decline in demand for industrial products will see the biggest decline in demand for Group I basestocks since Group I accounts for the majority share in the formulation of industrial lubricants on a global basis. A decline in demand for industrial products will also result in demand loss for naphthenics.

Overall, the basestocks market could lose between 5.0 to 10.0 million tonnes of demand in 2020. Group I basestocks will account the most to this loss in demand (1.7 million to 3.6 million tonnes), followed very closely by Group II/II+ (1.7 million to 3.4 million tonnes), together accounting for at least two-thirds of the global basestock demand loss in 2020. The loss in Group III/III+ is expected to be around 0.7 million to 1.4 million tonnes, while the balance would be accounted for by Group IV and Group V (including naphthenic) basestocks.

Estimated Decline in Global Lubricant Basestocks Demand Due to Covid-19 Containment Efforts, 2020

impact of Covid 19 on basestocks market

Impact on basestock supply

The outbreak of COVID-19 can potentially reduce basestock supply in several ways:

  • Basestock producers adjust their supply to match the declining basestock demand. This can either happen in the form of reduced run rates for basestock plants or the temporary/permanent shutdown of operations.
  • Some basestock producers may use this time to do a maintenance turnaround.
  • Crude oil refineries will run at a lower rates as demand for fuel will decline. This invariably will result in constrained availability of feedstocks to run basestock units.

In response to a decline in demand of 5.0 million to 10.0 million tonnes, there will clearly have to be an impact on basestock supply. From preliminary estimates, the global basestock production in 2019 was around 40 million tonnes, representing an average effective operating rate of approximately 77%-78% (calculated as a fraction of effective capacity after taking into account planned and unplanned outages). If the basestock availability were to drop by 5 million tonnes to match the reduction in demand, the global average operating rate would be reduced to under 70%. Clearly, basestock margins will suffer tremendously at such a steep reduction in operating rates. Therefore, it is anticipated that to adjust basestock availability, both effective capacity and average operating rates will have to drop.

Impact of Covid-19 on Global Basestock Supply under No Change in Capacity, 2020

Impact of Covid-19 on Global Basestock Supply under No Change in Capacity, 2020

Such changes in basestock supply can potentially alter the basestock landscape permanently. For instance, basestock supply disruption in Europe will reduce Group I availability, motivating blenders in Europe and AME to search for alternatives most likely, Group II. Such formulation shifts are permanent because of the cost associated with the shift.  

An inevitable fallout of the current turmoil will be the deferring or shelving of planned basestock capacities. Such plans have been impacted by double whammy of plummeting basestock demand and unfavorable economics arising because of the decline in crude oil prices. In many instances, basestock addition/expansion was a part of the overall refinery expansion plans. In low crude oil prices scenario, several of these plans may have been rendered economically unviable. Any plan which hasn’t yet moved to the construction phase is likely to be re-evaluated. Around 3.5 million to 4.0 million tonnes of new basestock capacity was planned to be added globally over the next five yearsOf this, more than half is in the planning stage. Thus, at least 2.0 million to 2.5 million tonnes of new capacity plans may be deferred or canceled 


A sharp decline in basestock demand is expected due to COVID-19. The actual magnitude of this decline will depend on the length and severity of the lockdown. While the decline in demand will be first borne by Group III/III+, owing to its higher usage of PCMO products, in the longer lockdown situation, Group I demand will suffer the most; it will be closely followed by Group II. This decline in demand will be accompanied by a decline in availability of basestocks. The supply disruptions could significantly alter trade positions for various regions, and blenders in some regions could face availability issues. This could potentially alter blending preferences and approaches followed in these regions as well. Because of the global supply-demand situation, much of the new planned capacity plans could be put on hold until the market environment improves. Further, the current market situation will result in some of the excess basestocks capacity being retired.  

Anuj Kumar is a project manager for Kline’s Global Lubricant Basestocks study, scheduled to be published in July 2020. Request more info.

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