Hurdles Hinder Argentina’s Strong Lube Market

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Advantages and disadvantages abound in Argentina. It is one of the G-20 economies, with an average income classified as “upper-middle.” It has the highest GDP per capita in Latin America, which translates to substantial purchasing power for its 40 million consumers. Its unemployment rate is relatively low (7.6 percent) and literacy very high (98.1 percent).

Argentina also has thriving automotive, construction and agriculture industries which are bouncing back from the downturn of 2009, according to Monica Graciela Vazquez of the Argentine oil company YPF SA, and a healthy lubricants market that should reach 315,000 cubic meters (about 285,000 metric tons) in 2011. That’s close to its strong showing in 2006 and 2007.

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“From this, you must think ‘Oh, she lives in an ideal country,'” she said, “but no.” The South American nation’s government has broad popular support, but its stance towards the petroleum industry has created difficulties – difficulties that extend to lubricant manufacturers and marketers, Vazquez said at last month’s ICIS Pan American Base Oils & Lubricants Conference in Jersey City, N.J.

Crude oil prices and fuel prices in Argentina are set by the government, she noted, and kept far below international levels. This makes it a struggle for oil companies like YPF to invest in product upgrades, refineries and other facilities.

Vazquez is technical service and OEM manager at YPF’s marketing division, and has worked for the company for 32 years, developing many of its fuels, lubricants and specialties, including its ExtraVida brand heavy-duty diesel oils for transport and agriculture.

In her Dec. 2 presentation, Vazquez said 60 percent of Argentina’s lubricant sales are automotive products, 38 percent industrial, and 2 percent greases. In 2008, the automotive/industrial split was 65/33, so industrial lube applications have been gaining.

In terms of market position, YPF is by far the country’s leader, with 38 percent of the overall lubes market in 2011, up from 34 percent in 2008. Total held 12 percent of the market, followed by Shell (22 percent), ExxonMobil (8 percent), Petrobras (7 percent) and Chevron (4 percent). Relative newcomer Petronas has captured 3 percent of the market, and smaller players share the remainder.

One reason for YPF’s success may be its extensive network of service stations, which perform engine oil changes and other fluid services. It also partners with many automotive OEMs, such as GM, Ford and VW, to supply lubricants for factory fill, and with dealerships for service fill.

Originally a government entity, YPF became a private enterprise in 1993 and merged with the Spanish company Repsol in 1999. Among the integrated oil company’s assets are three refineries, one of which (at La Plata) has an API Group I base oil plant with 4,700 barrels a day of capacity. Argentina’s sole other base oil refinery is a Shell plant in Buenos Aires, with 1,500 b/d of Group I capacity.

In general, Vazquez said, about 26 percent of installed oil changes in Argentina are performed at service stations, where YPF leads in outlets. Forty-six percent are done at lube shops, 14 percent in mechanics shops, and 17 percent at dealerships. In the early years of their warranties, however, drivers strongly favor dealerships for this service, handing YPF an edge in about 50 percent of cases. Overall, it lays claim to 40 percent of the passenger car motor oil market and 36 percent of heavy-duty engine oil sales, roughly double its nearest competitors in each category.

The Argentine market also has seen some shuffling of its top players. BP Castrol and Chevron pulled out (they’ll supply through distributors instead), and ExxonMobil sold its fuels refinery and service station network to Bridas. “Italy’s Agip also exited, while Petronas Lubricants has joined the game,” Vazquez said.

Some of this shuffle has been blamed on the heavy price controls and export duties the government imposed on the petroleum sector. Native companies and multinationals alike had used blending plants in Argentina to supply other countries in the region, but as taxes on petroleum exports rose to over 50 percent, lube exports were stifled and the operations became unattractive.

Technical challenges are looming for the market as well, Vazquez said, which could further shake up the status quo. New vehicles will have to meet Euro V air quality standards in January 2013, emissions devices such as selective catalytic reduction are being introduced for diesel vehicles, and B10 biodiesel could become mandatory nationwide later this year. All these factors will put more stress on engine oils and require costly lubricant upgrades.

Additionally, GM says its trademarked Dexos 1 engine oil must go into new gasoline-fueled vehicles throughout the Mercosur region in the coming months, and Ford wants an SAE 5W-30 that meets ILSAC GF-4/ACEA B5 to be used for both factory fill and service fill.

With such changes ahead, Vazquez sees the premium segment rapidly outstripping the older “fighting grades” of engine oil. “One-third of our sales are top-tier PCMO now, made with Group II and III base oils, and we are now licensed to make Dexos – the first in the region.”

Similar needs are rising on the heavy-duty side, she added, where 15W-40 is the best-selling grade. Demand is growing for premium quality multigrades, and for oils that can withstand longer drain intervals. YPF’s entry in this category is an ExtraVida product that can go 120,000 kilometers without change, Vazquez said, noting, “Long drain intervals are something an OEM can offer to the customer that has very evident value.”

Another ongoing headache for lubricant marketers, she said, is the “letter soup” that litters product labels: ACEA A1-3, ACEA B 1-4/C3, E 7/4/9, API SN, CH-4, CI-4 and so on. “If we can’t understand it clearly, it makes it very difficult to explain to the customer why they have to pay more for an oil they may have to change more frequently,” Vazquez said.

Unfortunately, she also senses that some automotive OEMs are more demanding of lubricant formulators in this region than elsewhere. Daimler, for example, insists that Group II base stocks be used in Argentina when making oils that meet its MB228.31 engine oil specification. “Why? There’s no technical reason to support it,” Vazquez declared.

Likewise, Ford’s specs for 75W gear oil (WSD-M2C200-C and -C2) impose far more severe viscosity limits than seen in the SAE J306 standard. “This obliges the formulator to use PAO. Why increase the cost of the product this way, and how can we communicate this to the customer?” she asked.

Instead of such “oversized” specifications, she urged lube companies and OEMs to work together to develop lubricants with international quality performance “that are tailored to this region’s socio-economic realities.”

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Business    Region    South America