Global demand for general industrial lubricants will decline 13 percent for this year, due to the COVID-19 pandemic, consultancy Kline & Co. projected. Although down to an estimated 5.6 million metric tons in 2020, demand is expected to grow in 2021 and continue doing so out to 2024.
The pandemic has been a major challenge to the industry, “between the shutdowns and the global spread of virus where shutdowns were staggered,” David Tsui, a project manager in Kline’s energy practice, said during an online webinar on Sept. 9. “For instance, China was shut down first, then followed by Europe. The way it spread out, it dragged out the overall shutdown.”
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Kline projects demand for general industrial lubes – hydraulic fluids, industrial gear oils, turbine and circulating oils, compressor and refrigeration oils, and greases – to grow through 2024, he said, but doesn’t anticipate it recovering to 2019 levels during that span. “Not within that five-year period, by our projections,” he added. However, the company does anticipate about a 3 percent compound annual growth rate from 2020 to 2024, building off the projected decreased demand this year. “So they’ll be slightly recessed from original 2019 volumes.”
He noted that end users of different general industrial lubes have experienced much different impacts during the pandemic. For example, transportation equipment manufacturing companies were impacted very greatly by COVID-19, whereas power generation saw a much lower impact, 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 the products in question was 6.4 million tons in 2019, accounting for about 19 percent of overall global lubricant demand not including process oils, Kline estimated. Asia-Pacific led with more than 40 percent of the general industrial oils and grease demand, followed by Europe and North America with over 20 percent each.
Tsui noted that general industrial oils and grease demand had grown at a steady, modest 0.2 percent compound annual rate over the past five years through last year. “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.”
Asia-Pacific, Europe and North America will likely experience a bit of decline in their volume demand for general industrial oils and grease for this year, he said. “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 added.
Although Asia-Pacific is expected to remain the leading region for consumption of these products, demand will grow fastest in South America, Africa and the Middle East in the 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 [the pandemic], so their parts obviously stopped being made.” As a result, in North America an auto manufacturer may have shut down during the pandemic 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 first earlier this year as one of the first countries to come back online from the pandemic. However, he noted that with manufacturing in the United States and Europe down for a time, the China plants had no customers to make parts for. “It’s a multi-phased impact that’s really wreaked havoc with the industry,” he 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 in particular, he said. One way is that manufacturers have begun looking to diversity their manufacturing plants.
Tsui explained that in the past, a manufacturer would plan for a major plant in China to serve not only demand there, but also outside regions and supply elsewhere. Now, it would look at right-sizing a plant only to supply China itself, 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.