Australias mining industry is a pillar of the countrys economy and a major consumer of lubricants. But domestic lube suppliers arent extracting much profit from it. Quite the opposite, in fact.
A recent report by market research firm Frost & Sullivan estimated the value of the Australian mining lubricant segment at AU $440 million (U.S. $413 million) per year, and it forecasted demand growth for the next several years. But the firm, along with other sources, also says that foreign internationals dominate the market and that locals will have difficulty breaking through.
Mining is Australias largest industrial sector in terms of contribution to gross national product. Focused on minerals such as iron, bauxite, copper, gold and uranium, it also is responsible for a significant number of the countrys industrial jobs.
The industrys growth rate declined the past two years due to a global downturn in demand, but Frost & Sullivan says that expansion in prior years has created strong demand for lubricants used on both mobile and static equipment.
Total demand for mining lubes [in Australia] was about $440 million in 2013, Senior Consultant Sarah Wang told Lube Report Asia this month. Wang, part of Frost & Sullivans Industrial Practice for Australia and New Zealand, authored Analysis of the Mining Lubricant Market in Australia - Lubricants Driving Efficiency Improvements in a Softening Mining Sector, a study published in December. She added, The annual growth rate is projected to be about 5 percent to 7 percent between 2014 and 2018.
The report explains that there are three tiers of competition in Australias mining lube market: leading international oil companies, specialized lubricant suppliers and new market suppliers targeting small to medium customers and supply shortfall situations. The four leading suppliers are Shell, BP, Caltex and ExxonMobil.
Lube suppliers agree with Frost & Sullivan that its not easy to break into this market. They listed challenges such as the presence of highly entrenched market leaders and difficulty persuading customers to switch products. Also, despite the difficulty breaking in, competition is rising.
More competitors are coming into the market, including Gulf Oil, Sinopec, etc., Wang said.
Having performance certification of equipment manufacturers is a requirement, but its not always enough to gain customers confidence. Often, a successful track record in overseas projects is recognised by customers, while a return on investment is also seen as crucial for customers choosing higher-cost lubricant products.
We have longstanding relationships with many of the leading equipment manufacturers and work with them to design lubricants that meet the requirements of their equipment and the tough mining environments, said a spokesman with Shell, the market leader.
Speaking about the dominance of international companies, Murray Crawford, managing director of independent Australian brand Tru-Blu Oil, said, This unfortunately makes it hard for local Aussie blenders to get a leg up. However, for highly flexible skilled-up companies such as Tru-Blu Oil, which has the capacity to blend large volumes of high quality lubes quickly, it represents a growing opportunity. A family-owned company, Tru-Blu boasts of having the largest blending capacity of any Australian independent blenders.
Mining is still the smaller half of our market and a hard slog against the majors, but we see it as a very important and growing market for us, Crawford said. Theres always competition, but there doesnt seem to be many locals in the game to compete with. The real competition is with the majors.
The international companies appear determined to maintain their dominance. Caltex said in March that it would increase its storage capacity in Perth, a major resupply point for Western Australias mining industry.
Frost & Sullivans report says that Australias mining technology leads the world, with significant use of heavy machinery that requires high performance lubricants that can withstand high temperatures and pressures.
The largest and most common lubricant application is engine oils, used in earth moving machinery, including shovels, excavators, draglines, and other industry-specific equipment, the report reveals.
Biodegradable products have also been gaining customer attention, but only at a very slow rate. Researchers predict that in the short to medium term, mineral oil based products will continue to dominate the market.
Frost & Sullivan predicts that a global slowdown in demand for mineral resources will lead to slower mining sector investment, and therefore slower growth in lubricant demand. The report said that lubricant recycling is also reducing volume growth opportunities.