As the name suggests, base oils are used as a base material for manufacturing industrial grade lubricants such as lubricating grease, processing fluid, motor oil, etc. Since different types of machines or products different viscosity, properties, concentration, and temperature bearing capacities, additives are used with the same base material. Crude oil is used for producing base oil through an extraction process. The process requires heating the oil to separate the light hydrocarbons from the heavy ones. Light hydrocarbons are used for manufacturing fuels such as petrol and diesel whereas heavy hydrocarbons are used for manufacturing base oils and other substances. Base oils can be classified into categories such as naphthenic oils, paraffinic oils, and hydrotreated oils. Each of these oils has different properties and is derived from specific types of crude oils.
Deriving base oils from crude oil is a huge industry in itself and it also caters to a range of different end-use industries. The global base oil market report suggests that the market is expected to grow at a Compound Annual Growth Rate (CAGR) of 3 percent till 2022. The growth is likely to be driven by the growth and demand in the industrial machine and automotive market. The demand for high efficiency, clear lubricants is increasing, especially in the APAC region. Such demand is expected to increase at a CAGR of 4 percent in the APAC region.
How to Thrive Your Business in the Base Oil Market:
The base oil market is a dynamic industry that has two major end-user industries. One is the automotive industry and the other is industrial machinery. The group II base oils are considered favorable for most industries and therefore, have an extensive demand. The group II base oil demand is expected to grow at a CAGR of 3 percent till 2022 as well. Considering the global market, the industrial machine and lubricant sector consumes the maximum amount of base oils in the global market. The major demand force in the group II base oils is the APAC region where increasing mining activities are expected to drive the demand extensively in the coming years.
This is also a good time to start a business in the industry. However, entrepreneurs have to pay attention to a number of factors before entering into the industry and this phenomenon remains the same for both the new and experienced players. Here I a brief outlook on the tips for making your business thrive in the base oil market.
- Entrepreneurs have to understand the market dynamics such as global industrial outlook, market dynamics, the standing of the competitors, and growth drivers and challenges. Talking about the demand outlook in the industry, the market is facing a capacity glut in the APAC region which is also expected to increase due to capacity additions in the next 2-3 years. The majority of derivative units that are located in APAC and the U.S. will also drive the demand. Similarly, the automotive sector which is growing at a CAGR of 2-3 percent and mining sector which is growing at a CAGR of 3 percent will drive the major demand. The mining in countries such as China, Mongolia, and Australia are encouraging demand in the sector. Lubricant production is also planned for adding capacities of approximately 1.5 MMT will add to the overall demand.
- Understanding the industry best practices and benchmarks set by leading players such as Chevron, Exxon Mobil, and Sinopec will go a long way in thriving your business in such a niche market. Understanding their practices and contracting method can be a great strategy while starting a business in the industry.
- Entrepreneurs have to be mindful about the demand, capacity, and supply landscape in the group II base oil segment. Group II base oils are highly pure and clear that fall in the group of oils that do not spoil the environment. Original Equipment Manufacturers (OEM) and environmental concerns have promoted the use of group II base oils which is also an encouraging factor in the rising demand and capacity addition. The market outlook also suggests that the demand for light and economic vehicles is increasing which is pushing the industry for using more synthetic oil that also in the Group II base oils. The industry dynamics are changing and approximately 30 percent of the players in the regions such as APAC and the U.S. are switching their preference from the group I to Group II base oils.
Entrepreneurs have to understand these dynamics and then they can figure out their options. They can either opt for the manufacturing or they can also choose to supply the product through various means. In any case, there are many possibilities through which they can capitalize on the opportunity. Entrepreneurs also have to thoroughly analyze a number of aspects such as market trends, demand-supply outlook, capacity dynamics, analysis of industry leaders, and more.