Transcript Australian Lube Prices

Australia lube prices increase drivers
January 30th, 2005
Australia Lube price increases drivers
Baseoil prices & Forex trends
Australian diesel prices and CPI trends
110
0.77
140
105
150
130
85
0.755
80
$AU cpl
0.76
90
0.75
75
125
145
CPI
95
$AU/$US
$AU cents/kg
135
0.765
100
155
120
140
115
110
70
0.745
60
0.74
Jan-05
Jun-05
Aug-05
Sep-05
Average base oil price cents/kg ($AU)
Oct-05
135
105
65
100
Nov-05
130
Jan-05
Jun-05
FOREX $AU/$US
Aug-05
Sep-05
Diesel prices cpl ($AU)
Oct-05
Nov-05
CPI
•
Through 2005 base oil prices continued to increase due to escalation in crude oil prices as well as constrained supply
of base oils and increased demand mainly in China, India and the US.
•
Similarly diesel prices increased significantly resulting in higher distribution costs.
•
Between Jan 2005 and Nov 2005 average base oil prices increased by 46%, and average diesel prices by 20%
•
Plastics (HDPE) prices increased by about 7% (and by 16% since June 2005) thus increasing packaging costs
•
Additive import index increased by 9% over the period
•
Over the period the Australian dollar depreciated by 2% against the US dollar. Thus increasing the cost of base oils in
Australian dollars
•
Inflation has increased with the Australian Consumer Price Index (CPI) increasing by 2% over the period
•
The International Maritime Organisation (IMO) manages international conventions in regards to shipping. Australia is
a signatory to these international conventions.
2
Data and references
Indicator
SN 150
SN 500
BRT
Average base oil price cents/kg ($AU)
Additive import index
Diesel prices cpl ($AU)
CPI
FOREX $AU/$US
Steel prices cents/kg ($AU)
HDPE (plastics) prices cents/kg ($AU)
•
Jan-05
490
500
648
71
119
105
147.5
0.7649
75
129
Jun-05
548
555
756
81
123
119
148.4
0.7665
76
119
Aug-05
600
603
803
90
123
125
149.8
0.7404
68
139
Sep-05
635
644
843
95
130
132
149.8
0.7461
76
143
Oct-05
686
697
890
100
130
134
150.6
0.7541
72
151
Average % Average %
movt Jan to movt Jun to
Nov-05 Nov 05
Nov 05
708
44%
29%
721
44%
30%
911
41%
21%
104
46%
29%
130
9%
5%
127
20%
6%
150.6
2%
1%
0.7483
-2%
-2%
68
-9%
-11%
138
7%
16%
One of these conventions is MARPOL (Marine Pollution). It is an international convention for the prevention of marine
pollution from ships. From April 5, 2005, MARPOL requires that all Dirty Petroleum Products (DPP) such as heavy
lube oils be transported into Australia using double hull ships. (see website below for more details). Commercially,
this convention narrows the pool of available ships for use in Australian waters and due to normal supply and
demand drivers, directly increases our costs.
References
http://www.icis.com (base oil prices, additive import index and plastics prices)
Quoted Base oil prices are FOB Singapore
Quoted HDPE (plastics) prices are CFR South East Asia
Diesel prices: fuelwatch.com.au: accessed 24/01/2006
CPI - Australia Bureau of Statistics (ABS Cat 6401):
CPI (Consumer Price Index) - basis of index 1989/90 assumed 100
CPI weighted average for 8 cities all groups
Forex - $AU -$US hedge settlement rate used
http://www.crumonitor.com/80256B48004C7375/vWeb/wpCWAN56WN8X (steel prices)
Quoted steel prices are FE non-CIS Cold Rolled coil prices
http://www.imo.org/Conventions/contents.asp?doc_id=678&topic_id=258 (MARPOL)
3
Base stock market
Evolution of Base stock Manufacturing*
•
From 1990-2005, over 60 refineries
closed removing an estimated 175kbd of
base stock capacity
•
Global base stock manufacturing is
running a full capacity
•
Shift in base stock production from
Group I to group II+ (Group II is a higher
quality than Group I). Suppliers are
repositioning capacity to meet demand
for higher quality base stocks
•
Group I capacities are continuing to
decline through plant closures and
upgrades. Investment projects are for
Group II base stocks and higher
•
Majority of our locally manufactured lube
oils are based on Group I base stock
technology.
*data source Exxonmobil
Reduced capacity in Group I production means that base oil pricing is expected to
remain high with the possibility of further increases
4
Market Fundamentals (Exxonmobil L&S understanding/interpretation)
Market Fundamentals
Situation
Implication
Energy Complex
• All Basic commodity values significantly up
• Demand driven, supply constrained
• Raw material cost increasing
• Value of alternative products increasing
Basestock Market
• Basestock refineries are closing and there is little
investment in new Group I production facilities
• Manufacturing operating at full capacity
• Finished lube oil market driving a shift in basestock
quality requirements
• Rebalancing of supply (Move to Group II+)
• More profitable alternatives to basestock
production drive prices up
• New investment focused on meeting
higher quality standards (e.g Group II+
and GTL)
• Group I basestock capacity reducing
Additive Market
• Chemical market strengthening
• Manufacturing is running at full capacity
• Demand driven
• Raw materials are capacity constrained
• Additive cost increasing
• Limited investment in new technology
• Returns on additive business below
historic levels
Total Finished Lube Oil Market
• Overall demand flat
• Increased demand for higher quality products
• All product values increasing
• Price increases in all markets
Other
• Technology demand growing
• Rapid and sustained raw material cost increases
• Finished product prices lag all market
indicators
• Market under performing
• Prices are increasing
Market fundamentals are interrelated. The price increase is not a result of a cyclical blip in any
one factor but is a reflection of an overall supply and demand market correction.
5
Additive Market
• Natural gas is used in various aspects of
additive manufacture and has been subject to
significant price increases (see charts)
14
12
10
8
6
4
2
0
Nat. Gas
• Operating facilities slow to recover from
supply disruptions in 2005 (e.g. fire at Oronite’s
Singapore plant and hurricane damage to US
Gulf Coast plant)
*Data source NYMEX
Basestock Average Spot Price **
100
•Demand for additives continues to grow
USD/bbl
90
80
70
60
• Overall tightening of the energy market has
resulted in additive raw material shortages and
price increases (see charts)
• Global additive inventories are low and
industry is operating a full capacity
Ja
M n-0
a 3
M r- 0
ay 3
Ju -03
Se l-0
p 3
No - 0
3
Ja v-0
3
n
M -0
ar 4
M -0
ay 4
Ju -04
Se l-0
p 4
No - 04
Ja v-0
4
M n-0
ar 5
M -0
ay 5
Ju -05
Se l-0
p- 5
05
Nat. Gas, $/MBTU
Nat. Gas Pricing*
USGC 100SN
USD/bbl
50
40
• Additive suppliers have reduced
manufacturing capacity through the
rationalization of high cost production
Ja
n
Fe -0 5
b
M - 05
ar
Ap - 05
r
M - 05
ay
Ju -05
n0
Ju 5
l
Au 05
g
Se - 05
p
O - 05
ct
No 05
vDe 0 5
c05
• Additive industry re-investment levels low due
to poor returns
**Data source ICIS-LOR
Additive market has experienced a rapid shift from an over to under supply
6