Exxon Mobil’s Group II base oils refinery opening in Rotterdam and declining car sales in Europe has had little impact on US flows of base oil volumes into Northwest Europe during the first half of this year.
The first six months of 2019 saw 358,982 tons of base oils arrive into Northwest Europe from the US, climbing from 284,306 tons over the same period last year. Some 81 percent of 2019’s volumes were Group II product, compared to 78 percent over the first six months of last year.
The increased volume of base oils into Northwest Europe will struggle to find much demand in the European automobile sector as the car industry faces continuing struggles. The most recent figures from the European Automobile Manufacturers Association show that new car registrations during the first half of the year fell by 3.1 percent compared to the same period last year to 8.2 million, with the exception of Germany, where registrations rose by 0.5 percent over the same period.
Major European car manufacturers are feeling the pain of weaker European consumer confidence, the lingering impact of the diesel cheating scandal, combined with stricter regulations on emissions and electric cars increasing in popularity. The slowdown in China is also impacting demand for luxury European brands. Daimler, the parent company of Mercedes Benz, has issued four profit warnings so far this year while BMW shocked the automotive industry in May by reporting its first loss in a decade.
From the supply side, Exxon Mobil began offering spot volumes of Group II product from their Rotterdam refinery, which started up in the first quarter of this year, but the product is not yet widely available and the refinery is still ramping up towards full capacity. With Europe not fully benefiting from increased domestic production, the demand for US Group II product continues, especially because a large percentage of the US volumes have approvals for use with European car manufacturers. When Group II production increases from Rotterdam and becomes more readily available on the market in Europe, expect this to take a chunk out of the Group II volumes exported from the US to Northwest Europe.
The European base oil market is finding strength in other sectors outside the automobile industry. Vehicle registrations for commercial vehicles increased 5.8 percent compared to the same period last year to 1.36mn, with particular strength in the UK and Germany. Bigger engines in commercial vehicles means larger quantities of lubricant are required compared to passenger vehicles, and commercial use means high mileages, which results in more frequent oil changes.
Also, in the lead up to the IMO 2020 sulfur cap, ships will need to run low-sulfur, higher specification lubricants come January 1, which will increase demand on the Group II base oils pool, particularly in shipping hubs like Rotterdam.