Aussie Lube Industry Shrinks

The Australian lubricant industry is in a sustained decline, as local producers face increasing competition from importers and tougher conditions in export markets, according to an annual market analysis by market research group IBISWorld.

Over the next five years, export volumes and revenue are expected to continue a downward trend, contributing to the overall contraction in the industry, said Hayley Munro-Smith, industry analyst at IBISWorld.

The report, titled Lubricants and Other Petroleum Product Manufacturing in Australia, projects that the countrys lubricant industry revenue will decline by a 2.3 percent compound annual rate from A$1.6 billion (U.S. $1.1 billion) for the 12-month period ending June 30 this year to A$1.4 billion for the year ending in mid-2024. Thats improved from the 3.5 percent compound annual rate of decline the market research firm estimated over the previous five years.

A recovery in the mining sector, Australias biggest export earner, and an acceleration in road and bridge building around the vast 8,000 square kilometer country are helping to slow the rate of decline, said Munro-Smith. But, we dont expect that to turn around the fortunes of the industry.

For perspective, a mining vehicle can contain as much as 500 liters of engine oil, or 100 times as much as a family car. Meanwhile, mixed consumer sentiment and longer recommended oil drain intervals for new cars and trucks in recent years have contributed to a decline in sales of engine oil in Australia, the report said.

Munro-Smith said the number of local players in the lubricant industry is expected to contract from 160 in 2018. Thats down from 170 five years earlier.

There have been difficult operating conditions, so we have seen the exit of several enterprises and amalgamations, Munro-Smith said in an interview with Lube Report.

The latest example of consolidation in the Australian market was in April when the local arm of German-based Fuchs Petrolub SE took over 39-year-old family owned Nulon, a local blender of hundreds of products for the automotive aftermarket.

IBISWorld forecast that lubricant and grease exports will reach A$264.2 million per year during the current fiscal year, or about 17 percent of the industrys total revenue. By comparison, exports made up an estimated 28 percent of revenue for the year ended June 30, 2014. Exports are forecast to account for little more than 10 percent of industry revenue by 2024.

Industry operators have struggled due to export declines over the past five years as global production increased, the report said, adding that declines were noted in Australian exports of lubricants and oils to Japan, Singapore, Malaysia and India.

Still, there will always be a market for Australian products in the global market, said Munro-Smith, explaining that they are well regarded for their quality and reliability. I wouldnt write Australian products off simply because the Australian dollar is so high, said Munro-Smith. The Australian dollar has been trading mostly between 70 and 75 U.S. cents over the past year. Many economists regard this exchange rate as too high to maintain a healthy manufacturing industry and Australian products to be competitive in global markets.

Munro-Smith said her research found local lubricant and grease production of about 320 million liters per year or about 283,000 metric tons. At current export levels, that would provide enough volume to meet about 60 percent of local demand. Imports supplied the other 40 percent of the demand.

Even the biggest players in Australia, BP and Caltex, have increased imports at the expense of local production.

The industrys major players are multinational companies, and their production facilities can easily be shifted from Australia to other countries, to the industrys detriment, the report concluded. Import growth is set to increase across most product groups, particularly high-end petroleum engine oils, aviation oils and specialty oils and greases.