Argus Media base oil reporter Kauanna Navarro told the Argus Global Base Oil Conference on Feb. 22 that the global supply squeeze at the onset of the Russian war in Ukraine waned during 2022, when the global trade flows saw significant shifting, beneficial for the South American markets.

“Latin American buyers have secured and are looking for opportunities to secure more supplies of all grades from other regions after the arbitrage from Asia and Europe became more attractive,” she said.

“Brazilian and regional [base oil] production issues supported the demand for heavy grade imports … The arbitrages opened in 2022 moved lower price Group I base oil from Russia to Brazil, but the imports from this country fell as financial and logistic constraints placed on Russian companies and products made it difficult to move the material to Brazil,” she added.

The data in the presentation is taken from the region’s customs services, Brazilian National agency of petroleum natural gas and biofuels, as well as from the Comex Stat, a system for querying and extracting data from Brazilian foreign trade. 

The U.S. and South Korea increased their shipment to Ecuador, Chile, Peru, Argentina and Colombia, after the U.S. and Europe placed sanctions and embargos on Russian companies and supplies because of the Kremlin’s invasion of Ukraine, Argus found.

“The China lockdowns in 2022 displaced the supplies from Taiwan and China. These supplies targeted India and many of these volumes were re-exported to outlets in Latin America,” she said, adding that that most of the Latin American markets are completely reliant on imports.

India for example, increased its supply to Brazil from less than 5,000 tons in 2019 to about 34,000 tons in 2022. Russian shipments to Brazil surged from around 2,000 tons in 2019 to 18,000 tons in 2021, dropping to 6,000 tons in 2022. Last year, Finland shipped 8,000 tons of base oils to Brazil, up from around 2,000 tons in 2019.

The U.S. is the main base oil supplier to the west coast of South America, and its shipment to the region increased from 48,000 tons in 2019 to around 65,000 tons in 2022. While the South Korean shipments to these countries increased five times – from around 2,000 tons in 2019 to more than 20,000 tons in 2022 – shipments from the U.S increased only 15%, the firm found.

Argus also found that lower prices in Asia-Pacific compared to other key regional markets opened the arbitrage to South America, but financial and logistical constraints made it difficult for more arbitrage shipments to move there.

Being the largest economy an importer in the region, Brazil showed poor performance in 2022 and its base oil imports faltered, showing a substantial decrease.

“Brazil is the largest importer in Latin America, but the lower domestic base oil production in the first half of 2022 incentivized the buyers to seek alternative Group I and Group II supplies from the export markets to supplement the insufficient domestic production,” Navarro said.

Argus found that imports account for 25% of the Brazilian base oil demand. The country’s imports stood at around 950,000 tons in 2021, falling to around 690,000 tons in 2022.

“In 2022, imports from all key regions fell, reflecting Brazil’s political instability, the weaker market dynamics and lower finished lubricant demand,” Navarro said.

In 2021, U.S. shipped to Brazil around 550,000 tons of material, and then the shipments decreased to 420,000 tons in 2022. Asian loadings to Brazil stood at around 100,000 tons both years, while European shipments decreased by half from 80,000 tons in 2021 to around 40,000 tons in 2022.

Argus found that Brazil’s finished lubricant demand rebounded sharply to around 1.4 million tons in 2021 after the COVID-19 lockdowns in 2020, but it slowed down in 2022 to around 1.3 million tons on political uncertainty and slower economic growth. The company said the country’s demand outlook for 2023 is uncertain because of likely policy changes from the new government.