Japan Trends to Group II and III

Japan will have excess supply of API Group I base stocks because demand is shifting to Group II and Group III to meet specifications for fuel-efficient automotive engines dominating the local market, industry experts told Lube Report Asia.

“The overall demand outlook [for base stock] is flat to mildly declining, and consumption of Group I is expected to decline rapidly to be replaced by Group II and II+ and Group III and III+, along with polyalphaolefins,” Adachi Yukihiko, managing director of Kline & Co.’s office in Tokyo, said at the ICIS Asian Base Oils and Lubricants Conference in Singapore in May.

Kline forecasts that the Group I share of base oil demand in Japan will drop from 44 percent in 2014 to 31 percent in 2024. Over that same period, the firm headquartered in the United States predicts that the Group III share of demand will increase from 14 percent to 18 percent and that the Group II share will swell from 29 percent to 35 percent. Total demand will fall from 1.50 million metric tons per year to 1.48 million t/y, Adachi said, adding that naphthenics and polyalphaolefinsare expected to account for 11 percent and 5 percent of the market, respectively, in 2024.

Base oil plants in Japan make mostly API Group I, but demand in the country is trending toward Group II and III base stocks.

“While Group I base stock is in surplus, Group II and Group III – including Group III+ base stocks – are in deficit,” said Adachi. TonenGeneral is a major exporter of Group I base stock, and most of the Group III base stock that Japan consumes comes from Korean refiners SK Lubricants and S-Oil Corp.

Engine oil formulators are shifting to Group II and III base stocks to meet automaker demands for crankcase fluids that provide better fuel economy and lower emissions of pollutants and greenhouse gases. Group II stocks are proving more popular in heavy-duty diesel engine oils, while passenger car engine oils are trending toward Group III oils and synthetic stocks such as polyalphaolefins.

In 2013, more than 60 percent of the passenger car motor oils consumed in Japan were 5W-XX or 0W-XX, said Yamamori Kazuo, of Toyota Motor Corp.’s Material Development Division.

“Needs for 0W-16 and lighter grades will promote the penetration of synthetics for passenger car motor oil, and we see the share of 0W-XX grades in PCMO for Japan is projected to grow from 26 percent in 2014 to 43 percent in 2024,” Adachi added.

“Demand for synthetic base oils like PAO, Group III+ and Group III will increase, and as the future market demand for low-viscosity develops, consumption of highly refined base oils will continue,” said an official with Japanese refiner, who asked not to be identified.

Adachi agrees. “Demand for Group III and IV is expected to grow at the cost of Group I.”

However, “even though demand is moving away from Group I, there is demand that has to be Group I, and shutdown of existing plants is not likely,” he added.

“The high demand for Group I is a result of high Group I availability in the country,” Adachi said. “Group I base stocks are used to blend industrial lubricants and low- to mid-tier automotive lubricants, while Group II base stocks are used to blend some heavy-duty motor oil grades and a few other automotive lubricants,” said Adachi.