The COVID-19 pandemic has caused serious damage to lubricants markets around the world, but the bigger problem could be the length of time it takes the industry to emerge from the crisis, according to speakers at a webinar hosted by Lubes’n’Greases.
Based on recent economic forecasts, lube demand in many markets may not return to past levels until after 2021, an industry consultant and the head of an Italian blender said during the June 24 event. They agreed that a downturn of that length will probably drive some companies out of business.
“The situation is pretty bad,” said Mattia Adani, owner and general manager of Nowal Chimica, a metalworking fluids producer headquartered in Milan, Italy. “How long can companies survive the situation – a few months, not more than that.”
He and Stephen Ames, managing director of SBA Consulting of Pepperpike, Ohio, United States, agreed that the outlook is grim because some impacts of the pandemic are likely to drag on or become permanent.
“There is broad agreement now that a more normal business environment will not happen until both COVID prophylactics and preventative vaccines become globally and widely available,” Ames said. “Physical distancing has limited the capacity and rebound capability of many affected businesses, and the return to old habits. Some will become permanent. The ongoing shift to working remotely reduces the use of both public and private transportation. Less miles driven, less lubricants consumed.”
Ames offered lubricant demand predictions for the global industry and several key markets in 2020 and 2021, based on recent economic forecasts by the Organization for Economic Cooperation and Development. Economic output has been a reliable predictor of lubricant consumption for the past couple decades, lagging economic growth rates by increments that vary between geographic markets but that remain generally consistent from year to year, he said.
Using OECD’s outlook, Ames predicted that lubricant consumption will fall 10.5% this year and recover just 0.3% in 2021. For the United States he forecast a 13.3% decline in 2020 and will actually decrease 0.7% more the following year. Demand in the European Union market will fall 13.3% this year and recover just 0.3% next year, he said. Brazilian consumption will fall 9.7 percent this year and rebound 1.8 percent in 2021, he estimated.
Ames noted that his estimates are consistent with those given by Kline & Co. consultants during another recent webinar.
Adani, who is also a board member of the Union of the European Lubricant Industry, said preliminary estimates indicate that demand in Italy was 22.7% lower during the first five months of this year than for the same period of 2019. He also expressed concern that consumption in his country may never fully recover, noting that it remained approximately 30 percent smaller in the period since the Great Recession than it was before that crisis.
Ames warned that high levels of unemployment could inhibit economic growth for three to five years and that this would probably hurt demand for most types of lubricants. The debts that governments have been racking up trying to stimulate their economies could blunt economic growth and lubricant demand, he said, although further spending infrastructure projects could boost demand for heavy-duty diesel engine oil and industrial lubes.
He agreed with Adani’s prediction that some lube suppliers will go under.
“If your business was not robust before the pandemic, it’s likely that you’re not going to survive the longer term,” he said.
The speakers agreed that this will lead to consolidation of the supplier base; Adani said his company is already considering acquisitions. Both also predicted that the pandemic will cause some changes in the way lube companies operate. Adani said companies will try to source more raw materials from suppliers in their domestic markets and that this crisis will reinforce a shift to the internet as business-to-business sales channel. A link to a recording of the webinar will be available later this week at https://www.lubesngreases.com/resources/