The Covid-19 pandemic has hammered Brazil’s finished lubricant industry, a consultant said this week, causing a sharp reduction in demand that could endure for some months.
Demand in South America’s biggest finished lubricant market plummeted 44 percent in April, compared to the same month last year, according to estimates by LubeKem, a consulting firm based in Sao Paulo. Consumption of engine oils for passenger cars and motorcycles was off by 69 percent, while heavy-duty diesel engine oils dropped 51 percent and transmission and hydraulic fluids by 35 percent.
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Automotive lubricants, which represent about 70 percent of Brazilian demand, was mainly impacted by the Covid-19 crisis, which caused domestic vehicle production to fall 99 percent year on year to less than 2,000 units. New vehicle sales dropped 76 percent to 55,700 units in April, and exports fell 79 percent to 7,200 units.
In May auto production in the country rebounded to 43,080 units but that still represented a decline of 85 percent year over year, according to figures released by the government.
“There is no doubt it was a deep and painful impact on Brazilian finished lubricants market because the Covid-19 crisis has negatively affected demand of both automotive and industrial lubricants,” LubeKem Executive Director Claudio Silva said in an interview.
Silva said automotive lubricants demand dropped because of sharp reductions in vehicle utilization rates. He added that Brazilian industrial output slipped 17 percent from March to April, eroding industrial lubricants demand.
But social and political factors are exacerbating the pandemic’s impacts on the overall economy as well as the lubes industry, Silva said. The crisis exposed and aggravated many social problems in Brazil, such as an insufficient health system, lack of basic sanitation and poor housing conditions and a large informal economy. “The informal sector of the economy, which represents about 17 percent of [gross domestic product], has been hit harshly by the Covid-19 crisis. Indeed, many analysts are expecting an increase in unemployment, the size of that sector and poverty in Brazil to turn at least into a short-term scenario post crisis,” he said.
Politically, mainly there is an incredible lack of coordination and cooperation between federal and state political authorities to join forces to combat the Covid-19 pandemic in Brazil. As a result, in general there are important planning failures and consequently some negative health and economic impacts, he wrote in an email.
“To be honest, without criticism or praise from my side, if the final decision was only from [Brazilian President Jair] Bolsonaro, Brazilian lubricants demand probably would not have dropped too much in the short term since he is not a defender of the so-called horizontal social distancing, which has been defended and applied by major state governments in Brazil,” Silva explained. “Since the beginning of the Covid-19 crisis Mr. Bolsonaro has been defending a so-called vertical social distancing, which probably also would increase the number of new cases and new deaths in Brazil due to Covid-19, besides damaging demand maybe for a longer period.”