UEIL Speakers Link Lube Demand to Economy


LISBON, Portugal-European lubricant demand is caught in the same doldrums as the European economy, and neither is likely to return to its vibrant past anytime soon, delegates to the 2012 Congress of the European Lubricants Industry were told.

Overall, since the turn of the century, European lubricants volume declined by 25 percent, Apu Gosalia of Fuchs Petrolub Group told the opening session of the UEIL Congress here. Gosalia, head of global strategic marketing and chief sustainability officer at Mannheim, Germany-based Fuchs, told delegates that as go auto, steel and chemical production, so goes the demand for lubricants in most Western and Eastern European countries.

Worldwide lubricant demand was approximately 35 million tons in 2011. Overall, Asia-Pacific accounted for 41 percent of world lubricant demand, North America for 20 percent, Western Europe for 11 percent, Central and Eastern Europe for 9 percent, Latin America for 8 percent, the Middle East for 6 percent and Africa for 5 percent.

European demand registered at 7 million tons in 2011. He noted that Western Europe consumed approximately 55 percent of total European lubricant volume in 2011, while Central and Eastern Europe, including Russia and the Commonwealth of Independent States (CIS), consumed approximately 45 percent. Breaking it out further, Gosalia noted that in the same year, the top five countries in Western and Eastern Europe represented 70 to 80 percent of their respective regional demand. Germany captured the top spot in Western Europe, with a 14 percent demand for lubricants, while Russian lubricant demand in the East was 20 percent.

Year-to-date figures for 2012 show that lube demand in Germany rose by 1,3 percent from year-earlier figures, but he warned that with revised data from German machine tool manufacturers and chemical industry in, we predict that lube demand in Germany in the full year 2012 will stagnate compared to the previous years level.

On average, the top five Western European lubricant nations (Germany, France, United Kingdom, Italy and Spain) lost about 25 percent of their demand between 2007 and 2009 but experienced a slight recovery till 2011, which was still 17 percent below pre-crisis volume level of 2007. Germany (-9 percent) and France (-14 percent) recorded above-average performances between 2007 and 2011, while Italy (-20 percent), the United Kingdom (-23 percent) and Spain (-26 percent) reported the steepest declines.

Gosalia said that in the last five years, the United Kingdom was hard hit because of its large dependence on the financial sector, while Italy was saddled with exceedingly high public debt and Spain reeled from a decline in construction, slumping exports and high unemployment.

Major lubricant countries of Eastern and Central Europe (Poland, Russia, Ukraine, Czech Republic and Hungary) showed an average decline in lube demand of 18 percent between 2007 and 2011. Poland (-10 percent), Czech Republic (-13 percent) and Ukraine (-16 percent) showed above-average performances between 2007 and 2011, while Russia (-20 percent) and Hungary (-23 percent) showed below-average performances.

Russia was hit hardest by the crisis in Eastern Europe, as oil prices plummeted and foreign credit that Russian banks and business relied on dried up, Gosalia explained. Hungary faced an inability to service short-term debt, declining exports, low consumption and the collapse in investor confidence.

Gosalia noted that 2010 and 2011 saw improved global lube demand. In 2010 we saw a partial recovery in light of the partly unexpected rapid economic growth, but not quite back to the pre-crises-level of 2007. We believe 2011 was up by about 2 percent over 2010, so over all, we were back to around 35 million tons, or approximately the 2003 level of demand.

He was emphatic in his assertion that the lubricants industry would not see the peak numbers of 2006/2007 again in the short term.

The 2011 volume increase, however, could not be attributed to Europe, but to the emerging markets of Asia-Pacific and Latin America, where demand rose by around 3 percent, Gosalia explained. The three BRIC countries (Brazil, India, China) in these regions were the growth drivers once more. The remaining regions, including the mature market of North America, increased by around 1 percent over 2010, except for Western Europe, where demand more or less stagnated on the level of the past year.

Gosalia noted that the world lubricants market and its long-term development is so closely tied to the economy at large that worldwide lubricant demand closely tracks global Gross Domestic Product (GDP). Noting that while GDP may be a rather poor predictor for year-on-year performance, he said it is certainly a good indicator for a long-term perspective. The average lubes-GDP gap over the past 11 years was about minus 4 percent, he said, with the lag being explainable due to labor productivity, lube efficacy increases, etc.

Using this GDP projection model for a single year exceptionally, Gosalia predicted lube demand for 2013 would decline by approximately 0.5 percent, given that the International Monetary Fund [IMF] predicts a GDP growth of 3.6 percent for that year. With year-to-date lube consumption data in hand for the major industrial nations and estimations for the rest of the world, he expected that when all is said and done the overall lube demand for 2012 will decrease by 1 percent from 2011.

Long-term demand in Europe will continue to decline due to declining population, industrial production moving East and economic uncertainty caused by the Euro zone crisis, he said, adding the continuous move to more quality lubricants resulted in extended oil change intervals, which resulted in lower demand. In other words, in the past eleven years Europe and the Americas lost in equal relative terms what Asia-Pacific and the rest of the world gained in lube volume consumption.

Gosalia said that in 2000, the share of Asia-Pacific and the rest of the world accounted for little more than one-third of global lube demand, but has increased to more than half of the world volume today as a result of growing industrialization and motorization.

Keynote speaker Hamish McRae, associate editor and chief economic commentator for The Independent newspaper in Great Britain, told the UEIL Congress that a shift of economic power to Asia-Pacific is inevitable, but that Europe could learn from the transition.

He said that recovery from the ongoing world economic recession is proceeding at two different speeds: one involving advanced or mature economies and the other involving emerging economies. The recovery viewed globally is secure, he said, but warned Europe will face additional dips down the road.

There is bad news in Europe, McRae said. But there is good news as well in the companies represented in this room that will use their cleverness to adapt to difficult circumstances. You can be despondent about government and the euro, but you dont have to be worried about European business. Hard times are making us better.

He warned that European business would have to continue to adapt to changing conditions. By 2020, the worlds largest economies would be the United States, with China nipping at its heels. By 2030, the largest economies would be China first, followed by the United States, India, Japan, Brazil, Russia and Germany.

Europe is aging fast, McRae said, noting it is the oldest society the world has ever known. Power and growth is shifting to the emerging world, which is much, much younger….The ability to adapt is crucial.

While he said the global economy will continue to be based on oil, gas and coal, he urged attendees to be as green as you can possibly be in your businesses.

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