India, the worlds third-largest lubricant market, will experience average annual growth of 2.5 percent over the next five years, Kline & Co. predicted in a study released last week. That level of growth would be consistent with the past two years but significantly lower than the several before that. Kline concluded that the market should hope for nothing better for the foreseeable future.
Demand growth for finished lubricants is closely tied to the [gross domestic product] growth rate, Anuj Kumar, a project head in Klines Gurgaon office, told Lube Report Asia. GDP growth in 2012 and 2013 was below expectations, and going forward it is expected that the economy will grow at modest rates. Some key industrial sectors such as mining and metals are facing low growth.
The report, Opportunities in Lubricants: India Market Analysis, focuses on key trends, developments, challenges, business opportunities and major suppliers. The commercial and industrial lubricant segments will exhibit moderate growth of 2.3 percent and 1.6 percent per year, respectively, whereas the consumer segment will grow the fastest – at a projected 6.6 percent per year, Kline said in a written statement.
Per capita lubricant consumption in India is quite low compared to developed countries, the report noted. But compared to other developing countries like China and Indonesia, Kline contends that there is significant potential for growth in lubricant consumption in India.
Industrial lubricants is the largest market segment in India, accounting for over 54 percent of the total market. Power generation, chemicals, automotive and other manufacturing, railways, marine and metals are the leading end-user industries, and these combine to account for nearly 80 percent of Indias industrial lubricant consumption.
Consumer automotive lubricants account for 13 percent of the nations total lubricants consumption. Motorcycle oil accounts for about 60 percent of consumer automotive lubricants demand. The market for commercial automotive lubes declined in 2013 due to stunted economic growth and its impact on sectors such as logistics, construction, mining and agriculture, the report said.
Automobile production in India has experienced strong growth of 14 percent from 2007-2008 to 2012-2013, Kline said. India, like most Asian countries, has a large percentage of two-wheelers, accounting for more than 75 percent of the total automobile production in 2012-2013.
The nation is also a huge market for process oils, which account for 53 percent of industrial lubricant demand. Rapid expansion of the power generation and distribution infrastructure has created a strong demand for transformer oils in India. Industrial engine oils (including those used on ships and trains), metalworking fluids and hydraulic fluids are other important product categories, the report added.
With gross domestic product of $1.8 trillion in 2012, India is the third-largest economy in Asia, behind China and Japan. Historically, India has been one of the fastest growing major economies. However, since 2010, the economic growth rate has dropped from 9.3 percent in 2010-2011 to about 5.3 percent in 2013-2014.
Kumar said lube suppliers shouldnt be too disappointed by the slowdown in volume growth. The market is also shifting to higher quality products, which bring a different type of opportunity since they generally afford higher profit margins.
There is clearly a shift towards better quality lubricants and synthetic lubricants, he said. This market for synthetic lubricants is quite small but has great potential.