INDUSTRY RUNDOWN Market Report GROUP III SUPPLIES RISE While Group II and Group I supplies were tighter in the second quarter, Group III supplies were more plentiful. Most of the additional Group III supplies in the market were semi-approved and unapproved. The semi-approved supplies came from a new plant in the Mideast Gulf region. The unapproved Group III supplies were domestically produced. More supplies of semi-approved Group III 4 cst and 8 cst supplies have continued to move to the United States from the new plant in the Mideast Gulf. More domestic blenders are using these premium-grade base oils. These supplies have secured more additive approvals to manufacture SAE 0W-20 passenger car engine oils for the North American market. Steady supply availability, at discounted levels to the existing fully approved Group III supplies, has boosted the attraction of these new supplies among domestic U.S. blenders. A couple of U.S. producers have converted some of their Group II light-grade supplies into Group III light grades. A major U.S. Gulf Coast producer started offering its unapproved 4 cst and 6 cst supplies in the domestic market in May. The supplies had been kept in tanks after the refinery's first production run in late 2016. The refinery is expected to increase its Group III production early next year. Another U.S. producer announced in May that it would have a new Group III 4 cst product. These supplies are expected to be available starting in the third quarter. The producers have secured some approvals to manufacture engine oils heavier than 5W grades. They are working to secure more approvals to produce full synthetic 0W grades. The increased supplies put pressure on Group III prices. The Argus domestic U.S. Group III 4 cst premium to Group II N100 narrowed to $0.83 per gallon in mid-June. This is down from a premium of $1.14 per gallon in July 2016. This narrowing spread between Group III and Group II light grades is making it less attractive for U.S. producers considering converting some of their existing production into Group III. The conversion process requires a large volume of Group II base oils to produce a much smaller volume of Group III supplies. Some producers that had converted their Group II production into Group III opted to maximize their Group II output in the first half of the year amid the shortage of and firm demand for these supplies. LOOKING AHEAD U.S. base oil prices are expected to ease in the second half of the year as supply availability improves and seasonal demand slows. Group II supplies are expected to improve after the round of plant maintenance is completed. Group I heavy grade supplies are likely to remain balancedto-tight for the rest of the year. A major Group I producer has a turnaround planned in the fourth quarter that will last at least 30 days. Another major U.S. Gulf Coast producer could continue to send a large monthly shipment of Group I heavy grades to Asia-Pacific at least through the end of the year. A major Group I plant in that region remains down for repairs after a fire in January. Group III supplies are also likely to continue to increase in the second half of the year. A major gas-to-liquids plant in Qatar restarted in the second quarter after an extended shutdown for repairs, and the plant continues to ramp up production. These supplies and other Group III supplies will target the United States. Fully approved Group III supply availability was also likely to improve after planned maintenance concluded at plants in southern Europe and northeast Asia in May and June. Molina is the editor of Argus Americas Base Oils. She can be reached at 713-360-7560 or eva.molina@argusmedia.com. 14 AUGUST 2017 | COMPOUNDINGS | ILMA.ORGhttp://www.ILMA.ORG