Foreigners Localize More Production in Russia

MOSCOW - End user perceptions of differences in quality between Russian and foreign-branded motor oil are narrowing, and the manufacturers of foreign brands have ramped up output within the country, lowering prices for mass market lubes, a consultancy found.

This is the strategy that foreign marketers have taken to compete with domestic majors continuing development of their blending capacities within the import replacement program, reinforced with the use of API Group II and Group III base oil products in synthetic and specialty product formulation niches, Olga Poltavskaya, managing partner in B2X, a Moscow-based consultancy, told a recent industry event.

Photo courtesy of Total Vostok

Stacks of lubricant drums in Total’s blending plant in Vorsoino, Kaluga Oblast. The French oil major opened the $50 million plant last October to supply lubricants within Russia as well as in Belarus and Central Asia countries.

International brands are becoming more aggressive in traditionally price-sensitive business-to-business sectors, while direct sales by foreign brands are noticeable in the market, she told GBCs CIS Base Oils and Lubricants conference, held here May 22.

The consultancy found that local production of foreign-branded products has more than doubled from 2014 to 2018. While foreign oil majors produced 53,000 tons of finished lubricants in Russia in 2014, this number was 111,000 tons in 2018, Poltavskaya said.

Three foreign oil majors now operate lubricants blending plants in Russia. Shell operates a 180,000 metric tons per year plant in Torzhok. Independent German blender Fuchs Petrolub operates a 40,000 t/y facility in Kaluga. Last year in October, French oil major Total opened a 40,000 t/y blending plant in Vorsoino, Kaluga Oblast.

Of the total foreign-branded lubricants consumption in Russia in 2014, 61 percent consisted of imported passenger car motor oils, while 39 percent came from the foreign oil majors local production in Russia. In 2018, this ratio was 49 percent to 51 percent, according to B2X.

Russian demand for foreign-branded passenger car motor oils was 129,000 tons in 2018. Demand for foreign-branded heavy-duty motor oil was 64,000 tons, while automotive transmission oils accounted for 44,000 tons. The demand for foreign-branded industrial lubricants in Russia in 2018 amounted to 17,000 tons, according to B2X.

The consultancy expects foreign lube manufacturers in Russia to continue to increase local production, while market leaders are stepping up efforts to win a share in the business-to-business segment and niche market segments.

Whoever of the foreign oil majors opens production [in Russia] of metalworking fluids and greases will have an advantage in the Russian market. On the other hand, import substitution is an opportunity for the Russian oil majors to replace the [foreign-branded] consumer products with [their own products at] competitive prices, Poltavskaya said.

The consultancy expects imported industrial equipment to continue to increase its share in Russia in the next 10 to 15 years, until research and development efforts become systematic.

This in turn directly affects the lubricants market, she said.

B2X insists that modernization of production capacity often leads not to a decrease but to an increase in oil consumption, therefore the demand for industrial oils is bound to grow.

And this will be visible in lubricants imports, with more foreign players opening local capacities in Russia and more competition in the synthetic and specialty product markets, she said.

The consultancy also found that local production of original equipment manufacturer motor oil [genuine oil] labels is gradually affecting the size of accessible market for the oil majors and that OEM [genuine oil] labels might change the competitive landscape in the country, Poltavskaya said.