INSIGHT
Duty on the Import of Group II Base Oils into Europe
David Wright, UKLA Director General
The announcement last month of a meeting of the European Commission at which time the ending of the existing duty suspension on the import of Group II base oil into Europe was discussed and agreed effective 1st January 2020, has sent shock waves around the industry.
For a market in significant transition away from Group I, any restriction on the supply of Group II product must be cause for concern. Already the bedrock of the automotive engine oil market, along with Group III, Group II base oil is increasingly being favoured in the industrial and metalworking sectors its advanced performance properties.
Moving to an EU import quota of 200k tonnes every six months in the New Year will drastically reduce the quantity of Group II base oil between N150 and N600 that can be imported into the European Union, on a duty suspended basis.
Imports of Group III, and Group II below N150 and above N600 are seemingly unaffected by this move. Last year it is estimated that anything up to 1.8 million tonnes of Group II base oil came into Europe from North America, the Middle East and Asia, the majority under duty suspended protocols.
In 2020, products from North America and the Middle East will be subject to controls whereas imports from Singapore and South Korea, and soon to be joined by Japan, will be duty suspended under free trade agreements negotiated with the EU.
The principle of favouring the domestic supplier’s base oil capacity in the Netherlands to service the needs of Europe, and then working around its production capacity, is exactly the right one. The EU
needs to be self-sufficient in Group II in future, and not reliant on external supply.
One of the main working assumptions in the calculation around this model is that all of the domestic supplier’s production capacity will serve the needs of Europe, and Europe alone, and this is not certain.
The key issue is, if the domestic plant is producing up to 1m tonnes per annum, how will a market in transition cope with managing a quota of 400k tonnes per annum which might leave a shortfall of a minimum of 400k tonnes and perhaps as much as 750k tonnes per annum, which will be subject to duty controls, at current demand estimates.
If demand proves to be higher, then the situation might be worse.
The key concern is, if the quota is imposed on a first come/first served basis, will the larger finished lubricant blenders seize the quantity ahead of those with less buying power or less access to available storage?
Setting the quota at too high a level would undermine the principle of effective duty controls in Europe, that is a given. In contrast, setting the quota too low might result in a two-tier market whereby smaller and medium-sized enterprises with less buying power, or less storage might be left to access quota’d Group II base oil at higher prices than some of the larger players, creating a price disadvantage that works against the interests of SMEs and ultimately against EU policies to encourage smaller businesses and open competition.
LUBE MAGAZINE NO.154 DECEMBER 2019
61
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68
