Australia might be known as the land of opportunity, and its lubricant market has attractions, but it also has risks for lube suppliers.
The large size of the market and its relatively high quality level understandably draw the attention of oil and grease companies, but the country is vast, volumes are flat, and specifications for key segments are fragmenting. On top of all that, the market is already cluttered.
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This snapshot was delivered by Greg Croaker, business manager of Quality Logistics Services Australia, at the ICIS Asian Base Oils & Lubricants Conference in Singapore last month. The continent may seem like an inviting place for imports, he told attendees, but it has seen its share of failure and losses of market share.
As Croaker noted, Australia has a population of 23 million people, and it consumes an estimated 450,000 metric tons per year of lubricants, making it the 18th-largest market in the world. The population is concentrated, with 80 percent of residents living on the east coast. Lubricant demand is more dispersed, though, thanks in part to large mining and energy sectors that have facilities spread across the nation.
A lot of lubricants are used away from the population centers, Croaker said. QLSA is a base oil distributor headquartered in Footscray, Victoria.
Unlike much of the Asia-Pacific region, lubricant demand in Australia is not growing. The automotive segment accounts for 64 percent of total lubricant demand, and the car park has grown 10 percent in the past five years. That growth is offset, however, by a trend toward longer engine oil drain intervals and shifts to smaller vehicles. The industrial base is shrinking, with Ford, GM and Toyota all closing local factories. Soft rock mining has also declined after low coal prices and the elevated value of Australias dollar lead to closure of many marginal mines. Other types of mines are experimenting with technologies that could reduce lubricant consumption.
BP, Caltex, Fuchs and Valvoline all have production facilities in Australia. Multinationals – some of which import – dominate the market, and Croaker predicted they will continue to consolidate their operations. Shell and ExxonMobil have closed blending plants, while BP and Caltex plan to dissolve their lubricant production joint venture next year. Fuchs did announce plans to build a new blending plant, and domestic companies are also investing.
A number of local companies are investing in new production or upgrading existing facilities, Croaker said, adding that they provide some competition for multinationals. A number are capable of servicing national and international accounts.
Croaker added that a large number of importers are cluttering the market. Collectively they account for less than 20 percent of supply, and they are under pressure due to recent declines in the value of the Australian dollar.
The lubricant business is complicated by fragmentation of the passenger car and truck markets, Croaker said. Japanese companies produce 52 percent of new cars, and their share of the market is growing, but U.S. and European OEMs also have significant shares. Truck sales are more evenly distributed. The challenge that this poses for lubricant suppliers is that different vehicle makes have different lubricant specifications.
The passenger and truck markets are fragmented, Croaker said. A broad range of specification and approvals confront the lubricant manufacturer. One size does not fit all.
Australia has a mix of viscosity grades for passenger car engine oils. Independent workshops install primarily 15W-40 to 20W-50 oils, while franchise car dealerships offer mostly 10W-30s. 0W and 5W grades are small if growing parts of the market.
Croaker added that light grades of heavy-duty diesel engine oils are still struggling to gain acceptance in Australia.
DEO market remains on 15W-40 and will continue to do so for the foreseeable future, he predicted.