Discouraging imports of low-grade blended lubricants and curtailing sales of straight mineral oils promoted as finished products are two key ways Nigeria can help its lubes market rebound from the impacts of COVID-19 lockdowns, an industry insider said last week.
“These are the measures, if implemented, that could help to alleviate the problem of slow recovery of volumes in the lubricants sector, especially for independent blenders,” John Erinne, CEO of Nigerian oil and gas services company Matrix Petro Chem Ltd., said in an Oct. 14 presentation during the ICIS Middle Eastern & African Base Oils & Lubricants Virtual Conference.
Slow volume recovery of Nigeria’s lubricant market from collapse, as the country’s lockdown was eased, is an ongoing concern. “Barely 50% of pre-COVID volumes have been obtained presently,” he said. Additional remedies include steady and progressive lifting of the lockdown and reopening of the country’s economy, he recommended, along with deliberate stimulation of the economy to accelerate recovery.
Nigeria’s lubricant market demand volume totaled 600,000 metric tons in 2019, Erinne said, citing data from a Lubricants Producers Association of Nigeria – or Lupan – report released this year. It accounts for about 20% of Africa’s total lubricants demand.
He said Nigeria’s lubricant market grew rapidly in recent years, by nearly 10% per year prior to 2015, before dipping during 2015-2017 due to global economic difficulties and a slump in crude oil prices. Post-2017, Nigeria’s lubricant market recovered, he noted, returning to a rapid growth of 8-10% per year. Demand will decrease this year, he said.
“Independent blenders in Nigeria I believe operate 40 out of 50 licensed blending plants in the country, and account for about 43% of storage capacity,” he said, citing information from the 2019 annual report of the Nigeria Department of Petroleum Resources.
According to Lupan’s 2019 report, independent lubricant blenders accounted for about 45% of Nigeria’s lubricant market share last year. “They were perhaps more severely impacted by COVID-19, owing to inherent fragilities,” he said. “They’re not as robust as the majors, which had more intrinsic capability to withstand the impacts of COVID-19. The independents were more highly exposed to such negative impacts.”
In addition to personnel health and safety challenges, he said, independent Nigerian blenders also coped with a variety of other impacts: supply chain disruptions, slow recovery of volumes following lockdown, increased bank charges, scarcity of foreign exchange for raw materials and imports, and exchange rate fluctuation and currency devaluation. All of this has required rethinking business strategies as well, he added.
Although the rupture of supply chain during the pandemic is a global issue, he said, it also has clearly impacted independent blenders in Nigeria as well. “There must be closer engagement with identified suppliers of materials to ensure sustenance and continuity in the supply chain,” he said.
On the financial side, he explained that most blenders are obligated to banks for loans taken to fund investments and working capital. “Interest payments and loan payments continue to be effective through lockdown,” he explained. “Sometimes interest rates are very high – in a country like Nigeria they could be up to 20%. All this combined to impact very severely and very negatively on the fortunes of independent blenders.”
The main way to alleviate that is through relief from bankers and restructuring of credit facilities, he suggested, ‘looking at extension of moratorium periods for payment of loans as well as temporary interest rate relief in order to give them a little more room to recover.”
Another financial impact concerns exchange rate fluctuations resulting from COVID-19 instability issues. “Many countries, including Nigeria, have suffered a decline in foreign exchange receipts, which makes it a little more difficult for blenders to access foreign exchange to import base oil and other raw materials,” he explained.
One way to remedy that, he suggested, is creating local production of base oils and raw materials where possible. Erinne added that an increased research for development of local raw materials, especially for grease production, would be helpful.
Economic impacts of the pandemic have also caused exchange rate fluctuations in many African countries, he said, including Nigeria. This has led to high inflation and unstable product pricing. “So the blenders have not been able to maintain stability in their pricing regime for finished lubricants in the marketplace.”