The COVID-19 pandemic will reduce global demand volumes for general industrial oils and greases by 13% this year, consultancy Kline & Co. forecasted during a webinar Wednesday.
The firm estimates that demand for those products – hydraulic fluids, industrial gear oils, turbine and circulating oils, compressor and refrigeration oils, and greases – will grow at a compound annual rate of 3% from 2021 through 2024 but not return to the 2019 level within that time period.
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Lubricant markets have been disrupted by economic lockdown measures imposed to contain the virus, and the impact was amplified by the staggered timing of such measures in different regions, David Tsui, a project manager in Kline’s energy practice, said during the online event. “For instance, China was shut down first, then followed by Europe. The way it spread out, it dragged out the overall shutdown.”
Kline predicts that demand for general industrial oils and greases will fall to 5.6 million metric tons this year. Tsui added that end user groups within the category have been impacted to varying degrees by the crisis. For example, transportation equipment manufacturers have been greatly impacted but power generators much less, Tsui said. “However, COVID-19 really had a negative impact on [general industrial oil] and grease demand by all the industries across the board,” he added.
Global demand for general industrial oils and grease was 6.4 million tons in 2019, according to Kline’s estimate, accounting for about 19 percent of the overall lube market. Asia-Pacific consumed more than 40% of the subcategory, while Europe and North America consumed over 20% each.
In the five years culminating with 2019, global demand for general industrial oils and grease demand had grown at a steady, modest compound annual rate of 0.2%. “It was growing more in certain regions and slightly declining in others,” he said. “It was originally forecast to grow a little bit more as economies picked up. However, COVID-19 really threw a monkey wrench into things.”
In percentage terms, the subcategory will probably shrink most in Asia-Pacific, Europe and North America this year, Kline expects. “Whereas in South America and Middle East – where they were growing [in demand] or projected to start growing originally – they’re not going to grow as quickly as originally projected, but they will continue growth,” Tsui said.
Although Asia-Pacific is expected to remain the leading region for consumption of general industrial oils and grease, demand for those products will grow fastest in South America, Africa and the Middle East in coming years, he said.
Tsui noted the global recession induced by COVID-19 remains the largest challenge to the industrial segment. The immediate impact was the shutdown of non-essential businesses and people sheltering at home.
“The fact the infection spread, and took time to go from region to region, has really hurt the industry,” he explained. “In the sense that Chinese parts manufacturers shut down because of COVID, so their parts obviously stopped being made.” As a result, in North America an auto manufacturer may have shut down because it didn’t have the air bags it needed or a critical automotive part due to a common reliance on sole sourcing items out of the Asia-Pacific region.
Plants in China began resuming production earliest, but as factories in the United States and Europe halted operations, Chinese suppliers had no customers to make parts for. “It’s a multi-phased impact that’s really wreaked havoc with the industry,” Tsui added. “It caught a lot of businesses off guard. We’re seeing it a lot with small businesses, but we’re also going to see it a lot more with small industries and industries that don’t have a lot of cash reserves or liquidity where they might not survive this pandemic.” This means more consolidation and bankruptcies are likely to occur, he noted, adding that strong players that have liquidity and are better prepared to handle the pandemic situation are more likely to come out stronger and bigger later on.
Some supply change shifts and trade route changes are likely to affect Asia-Pacific, especially China, he said. For example, manufacturers in other countries have begun looking to diversity their supplier bases.
Tsui explained that in the past, a manufacturer would plan for a major plant in China to serve that market as well as other countries. Now, it would look at right-sizing a plant to supply just China and then look to source parts and supplies in other countries and regions, he said. A manufacturer might consider moving to Indonesia, Vietnam or further away to locations such as the Middle East, which he noted is trying to attract more manufacturing to its markets. “They’re looking to diversify from having purely China as a sole source for parts and any types of things,” he said.