Exports of Group II base oils from the United States to Brazil grew for the third consecutive year in 2019 as Brazil’s demand for more advanced lubricant formulations continues to grow.
US exports of Group II products to Brazil hit a record 274,897 tons in 2019, up from 228,342 tons in 2018 and 123,788 tons in 2017, a growth of 122% over that period.
The base oil market in Brazil is increasingly turning to higher quality lubricants amid environmental and performance concerns, particularly in the automotive sector of Brazil’s expanding economy. While Group II demand improves, Group I has faltered. Brazil is the biggest consumer of base oils in Latin America. The country imports significant volumes of base oils because domestic production is unable to meet demand, and most of the national capacity is for Group I. Brazil has no virgin Group II production, instead producing limited quantities of re-refined Group II.
Between 2017 and 2019, exports from the US to Brazil for the less advanced base stock, Group I, have been steadily declining. Imports of Group I base oils from the US into Brazil were 96,766 tons in 2019, down from 108,054 tons in 2018 and 108,384 tons in 2017.
Demand for more advanced base oils lines up with Brazil’s recovery from a severe recession between 2014 and 2016. Brazil’s economy grew at its fastest pace since the start of 2018 during the third quarter of 2019, in what could be signs of entrenched recovery.
Consumer spending and business investment increased in the third quarter of 2019 as a combination of slow inflation, low borrowing costs and economic policies of President Jair Bolsonaro put more money in consumers pockets. Rate cuts and a reduction in joblessness have increased demand for loans, especially for vehicles.
Figures from the national automakers association, Anfavea, show the national fleet of both passenger cars and commercial vehicles has grown significantly over the last three years. The growth in newer vehicles means greater demand for Group II lubricants for use in those higher performance and lower-emission producing engines.
Total licensing for passenger vehicles and commercial vehicles rose to 2.79 million in 2019, compared to 2.57 mn in 2018 and 2.24 mn in 2017.
Total licensing for passenger vehicles of 215,190 in December was the highest individual month since December 2014, when total licensing hit 302,999 vehicles.
The growth in imports of Group II from the US to Brazil may slow in the coming years if expansion plans by the country’s main base oil producer, Petrobras, go ahead and Brazil becomes more self-sufficient for base oils.
Petrobras is considering a major overhaul of its base oil production, which could potentially quadruple output by 2022. The $400 million expansion for a new plant in the company’s Comperj refinery would raise lubricant production capacity to 225,000 cubic meters. The Comperj plant would be connected to the company’s Duque de Caxias Refinery, or Reduc, refinery by pipeline. The Reduc refinery is currently responsible for producing about 80% of Brazil’s domestic base oil production, but only produces Group I. The new refinery would target more advanced base oil formulations like Group II in an effort to reduce the countries reliance on imports, mainly from the US.