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Group III Basestocks Expected to Challenge PAO-Based Synthetic Lubricants for Market Share

20 May 1999

Group III Basestocks Expected to Challenge PAO-Based Synthetic Lubricants for Market Share

                  'New Kid on the Block' to be a Formidable
         Competitor in the Specialty Lubricants Business, Says Kline

    LITTLE FALLS, N.J., May 20 -- The stage is being set for API
Group III basestocks to challenge such traditional synthetic lubricant
basestocks as polyalphaolefins (PAO) and others for market share in the United
States, according to consultants at Kline & Company, Inc., a New Jersey-based
management consulting firm.
    The potential impact of the competition between Group III basestocks and
synthetics is so significant that Kline has made it a featured section in
SYNTHETIC LUBRICANTS AND FUNCTIONAL FLUIDS, 1999 TO 2004, its new syndicated
study that is scheduled for completion in November 1999.  The section,
entitled Intermaterial Competition, will analyze how various types of
synthetic lubricants and functional fluids compete for market share, focusing
specifically on cost, price/performance trade-offs, and market developments.
    API Group III basestocks, the challenger to traditional synthetics,
represent a relatively 'new breed of cat' in the specialty lubricants
business.  Although these basestocks were developed as an extension of the
interest of conventional basestock manufacturers, Group III basestocks are
typically not considered conventional in terms of either processing or
performance.
    According to Thomas F. Glenn, business manager at Kline, "Group III
basestocks require a relatively high degree of chemical manipulation to
produce and have a high saturates level, as well as a viscosity index at or
above 120.  Group III basestocks also tend to be significantly more thermal
stable than conventional basestocks."
    Although Group III basestocks don't necessarily reach the performance
level of traditional synthetics, Glenn notes that "a price/performance
analysis is expected to favor Group III basestocks over traditional synthetics
in some applications.  This favoring will, in part, be a function of the
expected lower price of Group III basestocks; PAO is typically priced at
$4 per gallon, while Group III basestocks are expected to be priced at about
half that amount."
    The performance advantages of Group III basestocks, together with the
level of processing required to manufacture them, certainly give rise to Group
III basestocks being a potentially strong challenger for the title of
synthetic, Glenn predicts.  "I anticipate the development of a 'definitional
war' over the use of the term synthetic as marketers of Group III basestocks
increase in number and seek to capture a greater share of the synthetic
lubricants business."
    To probe these issues in depth, SYNTHETIC LUBRICANTS AND FUNCTIONAL
FLUIDS, 1999 TO 2004 will provide both lubricant and basestock manufacturers
with an accurate and independent appraisal of market size and segmentation,
business opportunities, and competitive forces in the synthetic lubricants and
functional fluids business.
    Lubricant basestock is the main raw material used in the manufacturing of
finished lubricants.  A typical engine oil contains roughly 80% basestock; the
remainder of the product is additive.  The quantity of basestock in hydraulic
fluids and other industrial lubricants can be as high as 99% of the total
product composition.
    According to Glenn, close to 98% of the finished lubricant in the U.S.
market is currently based on solvent refined or hydrocracked basestocks.  The
balance of the demand is manufactured with such synthetic basestocks as PAO,
esters, silicone fluid, and polyalkaline glycol, among others.
    Established in 1959, Kline&Company is an international business consulting
firm offering a broad range of services to the petroleum, chemical, and allied
industries.  Klineis regarded as the worldwide authority on the finished
lubricants and basestocks business. Over the last five years, Kline has
completed two syndicated studies and numerous proprietary projects on the
basestocks business, focusing on supply and demand balance, changing
technology and markets, competitive forces, manufacturing costs, and other
business and market-related issues.
    For information on how to subscribe to this study, contact Thomas F. Glenn
directly at Kline & Company, Inc., Overlook at Great Notch, P.O. Box 410, 150
Clove Road, Little Falls, NJ, 07424-0410, 973-435-3410, or by e-mail at
Tom_Glenn@klinegroup.com.