MOSCOW-Production of Russian factory fill motor oil is characterized by small supply volumes and low profit margins, while manufacturers are facing more expensive tests and approvals, a market study found.
The study focuses on motor oils used to factory fill on-road vehicles such as passenger cars, commercial vehicles, trucks and buses, as well as agricultural machinery, forest and road construction vehicles.
Russia consumed 380,000 metric tons of motor oil in 2011, Maxim Matuk, director for research for the Moscow consultancy RPI told the eighth international Lubricants Russia conference held here in November. “At the same time, the factory fill segment amounted to 10,500 tons, or 3 percent of the total consumed motor oil, and we expect it to reach around 16,000 tons by 2017.”
Breaking down the 10,500 tons of factory fill motor oil, the study found that in 2011 passenger car factory fill oil held the biggest share, or 53 percent, followed by commercial vehicles and trucks (39 percent) and buses (5 percent). Agricultural machinery, forest and road construction vehicles held a 3 percent share.
In 2011 Russia produced 1.75 million passenger cars, according to RPI. “The trend is going upward, and we expect the country’s passenger car production to reach 2.7 million units by 2017,” Matuk said.
AvtoVAZ, Russian biggest car manufacturer, in 2011 held a 32.1 percent share of the total automobile production, followed by Avtotor which held 12.7 percent, Avtoframos (8.1 percent) and Hyundai Motors (8 percent). These were followed by Volkswagen Group Russia with a 7.7 percent and Ford (5.7 percent). Other car manufacturers such as Izh-Avto, General Motors and the joint venture between GM and AvtoVAZ held between 4 and 3 percent of car production in Russia. The remaining 15.3 percent was divided among other car manufacturers.
“Passenger car factory fill motor oil in 2011 amounted to 5,600 tons, and by 2017 we expect it to reach 8,600 tons,” Matuk said, adding that in this segment foreign car producers have their say. We expect domestic car producers to lose a significant chunk of the market in the following five years, he added.
RPI found that Russia produced 207,000 commercial vehicles and trucks, and expects that figure to grow to 300,000 units by 2017. GAZ is the biggest producer, holding a 47 percent share of the commercial vehicles and trucks market, followed by KAMAZ at 22.2 percent, Sollers Group at 11.5 percent and Ural at 6.3 percent. Other truck manufacturers such as Volvo Trucks and PSA VIS-Avto held 2.1 and 1.8 percent share, respectively, of total truck manufacturing. The rest, or 9 percent, goes to others.
“It is worth saying that the traditional Russian players such as GAZ and KAMAZ hold the dominant market position in this segment. Although some foreign truck producers are trying to establish a bigger foothold, we don’t expect any drastic change in the following years because competition here is not as harsh as in the passenger car segment,” Matuk noted. Factory fill motor oil consumption for Russian commercial vehicles and trucks in 2011 amounted to 4,100 tons, and RPI expects it to reach 6,000 tons by 2017.
In 2011 Russia produced 47,000 buses, and the consultancy expects this number to reach 100,000 units by 2017. “Concerning the fact that the public transport bus fleet in the country is very old, we expect it to double in the following years, returning to its pre-crises output numbers, which before 2009 were similar to what we expect in the next five years,” Matuk observed.
The biggest bus producer in the country is GAZ, with 31.1 percent in 2011, followed by UAZ at 29.2 percent and Russkiye Avtobusy at 24.4 percent. Other producers held between 3 and 6 percent share of the total bus production. Factory fill in this segment in 2011 was 562 tons of motor oils, and RPI expects it to reach 880 tons by 2017.
In 2011 Russia produced 13,000 units of agricultural machinery, forest and road construction vehicles, and RPI expect it to increase to 22,000 by 2017. This segment is also dominated by Russian producers.
“With Russia’s entry in the World Trade Organization, import duties for this machinery and vehicles decreased, and domestic producers expect a significant slump in their output fearing the foreign competition and imports,” Matuk said, adding that the government must step in with programs such as old and used equipment import taxes that could help that segment become more competitive and be ready to increase their exports from Russia.
The three biggest producers of agricultural machinery, forest and road construction vehicles are Rostselmash, Brayanskselmash and CHTZ Uraltrak, which in 2011 combined for 57 percent share of production. Motor oil consumed for factory fill in this segment in 2011 amounted to 265 tons, and it is expected to reach 457 tons by 2017, according to Matuk.
Other than the small volume of supply and in poor profit margins, Russian lube manufactuerers face additional challenges in the factory fill motor oil segment, including original equipment manufacturers’ requirements are tougher for factory fill oils than those for service lubricants and lube producers have to pay for more expensive tests and approvals for them.
However, the lube producers who won OEM endorsement for supply of factory fill oil have advantages, too. “It creates the possibility for a long-term relationship with their clients and the ability to use factory fill as a marketing tool to promote their own service lubricants produced for wider consumption,” Matuk concluded.