Australias lubricant demand may be flat to shrinking, but foreign companies continue to increase the volume that they import to the AU $1.7 billion marketplace.
They are doing so despite a weakening of the local currency, which should create a competitive disadvantage for foreign products. The end result is greater competition for domestic and foreign suppliers alike.
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The worlds largest independent lubricant supplier, Germany-based Fuchs Petrolub, which has been operating in Australia for 20 years, is planning a new blending facility, complementing its direct imports. PT Pertamina Lubricants of Indonesia has named growth in Australia as a key plank in its globalization plans. Among other foreign brands, another German company, Liqui Moly, entered Australia six years ago and says it is expanding its supply of lubricants for passenger and light-duty commercial vehicles.
There are still cost advantages for importing, said Allen Allday, senior researcher at business intelligence group IBISWorld. The Australian lubricant industry is going to face more competition from imports over the next five years.
This is despite a 20 percent fall in the Australian dollar to 74 U.S. cents in early August from 92 U.S. cents a year earlier. The local currency is down from a record U.S. $1.10 in July 2011. When the Australian dollar declines, imports become more expensive.
According to IBISWorld research, imports of lubricants and other petroleum products into Australia accounted for 37 percent by revenue of the AU $1.7 billion domestic market for such products in the year ended June 30. Thats up from a 24 percent share five years earlier.
IBISWorld forecasts that imported lubricants will increase at an average annual rate of 4.8 percent over the next five years, to reach $1.1 billion in 2019-20. Based on the firms projections, that would amount to 45.3 percent of domestic lube demand in that year. IBISWorld says import growth will affect most product groups, particularly high-end engine oils, aviation oils and speciality oils and greases.
Companies looking to import into Australia are looking to import higher grade product, said Allday. But competition will be tough. It will be difficult to bring in high-end at a lower price.
Shakeups and departures among big brand names including Chevron, Shell and BP in recent years have caused shifts in the marketplace, opening gaps for new players to exploit.
Chevron in March quit its 50 percent investment in Caltex Australia. A licensing agreement that gives Caltex rights to sell lubricants under Chevrons Caltex brand in Australia remains in place. BP and Caltex split their joint venture in Australasian Lubricants Manufacturing Co. in April, then Australias largest lubricant blending company. In February last year, Shell sold its Australian operations, including a refinery, to Swiss energy group Vitol, which distributes Shell lubricants as Viva Energy in Australia.
Australian mining industries are on the wane amid a downturn in global commodity prices, and this affects lubricant demand from one of the pillars of the nations economy. However, lubricant demand from the transport and warehousing sector is increasing. Asian branded vehicles have come to dominate the Australian vehicle parc in the past couple of decades, spurring growth of Asian-produced lubricants. American original equipment makers, including Ford and GM Holden, once dominated the passenger vehicle market but are divesting their local manufacturing.
Fuchs Australia Project Manager Steven Doughty said the company is presently in design and budget planning stages for a blending facility. Were in the feasibility stages, said Doughty. Well know a lot more by October. Its a replacement for the current Wickham plant, said Doughty, referring to the groups Newcastle blending plant, a two-hour drive north of Sydney. In 2013, Fuchs Australia, a wholly owned subsidiary of Germanys Fuchs Petrolub, invested AU $4.5 million in a warehouse in Melbourne, Victoria, where it also has a research and development facility. The local subsidiary makes a range of engine and hydraulic oils, coolants and greases for the automotive and mining industries.
Liqui Moly Australian Sales Manager Mark Johnson said a surge in imports of luxury European vehicles into Australia in recent years is not what drew the group to Australia, which is ranked among the worlds top 20 markets for lubricants. Australia has a good population of motor vehicles; the European fit was a secondary element, he said, noting that the population of European cars in Australia is still low but growing fast.
The Australian Bureau of Statistics 2015 Motor Vehicle Census shows the number of Audi and Volkswagen passenger vehicles almost doubled in the five years to January 31, growing 95 percent to 139,391 and 93 percent to 371,990, respectively. The number of Renault passenger vehicles registered in Australia grew 60 percent to 38,395, and the number of Porsche vehicles grew 37 percent to 28,731 in the same period. The census shows the total Australian passenger vehicle parc was 13,549,449.
Depreciation of the Australian dollar could help domestic lubricant suppliers increase exports to partly offset any loss of market share to imports, Allday said. However, it wont be enough to fend off closures of local producers.
Imports of automotive and industrial oil have grown at the expense of local production, IBISWorld stated in a report, Lubricants and Other Petroleum Product Manufacturing in Australia. Industry consolidation has also increased, with small and unprofitable manufacturing firms exiting the industry. The report predicted that the number of lubricant producers will drop to 170 this year and to 153 in five years.