CHICAGO – Although global demand for finished lubricants will grow minimally over the next five years, parts of the industry do offer opportunity for marketers, especially premium lubes used by several industries, a consultant from Kline & Co. forecast at the North American Industrial Lubricants Congress last week.
The Parsippany, New Jersey, firm estimated that finished lubricant demand worldwide was 39.4 million tons in 2015 and projected a compound annual growth rate of less than 1 percent through 2020. Asia-Pacific was the leading regional consumer with 44 percent of the total, followed by North America and Europe with 23 percent and 17 percent, respectively. Africa and the Middle East combined to account for 8 percent, the same sized share as South America.
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The highest-volume categories of lubes were on the automotive side. Engine oils accounted for 44 percent of global consumption last year, and that number broke down to 23 percent heavy-duty motor oil and 21 percent passenger car and motorcycle engine oils.
In terms of demand by application, it really is about engine oil, heavy-duty, passenger car and motorcycle, which is a good thing because these products need to be changed on a regular basis, said George Morvey, industry manager for Klines Energy Practice.
Besides engine oils, consumption by application was as follows: process oils, 15 percent; other automotive oils, 9 percent; hydraulic fluids, 8 percent; industrial engine oils, 8 percent; general industrial oils, 7 percent; metalworking fluids, 6 percent; and grease, 3 percent.
Excluding process oils, global demand for industrial oils and fluids was estimated at 12.2 million tons in 2015 and is expected to barely grow over the next five years, averaging a 0.6 percent annual increase. The three most-consumed industrial lubes were hydraulic fluids at around 3.2 million tons, industrial engine oils at approximately 3 million tons oils and metalworking fluids at just over 2 million tons.
The top five country markets in terms of industrial lubricants fluids consumption accounted for 51 percent of demand in 2015. The United States lead the pack at just under 2.5 million tons followed by China with a little over 1.5 million tons. Japan and Russia consumed under 1 million tons each, and India consumed around 500,000 tons of industrial lubes and fluids.
Despite the flat forecast for the overall market, Kline sees growth and opportunity in some product categories and geographic areas. Morvey highlighted attractive markets for industrial lubricants.
Part of what makes a market or category attractive is demand growth, but profit margin is also a factor. Premium lubricants – often formulated with synthetic and semi-synthetic base stocks – often carry healthy profit margins. The good news, Morvey said, is that demand is shifting toward higher quality products in numerous lubricant categories and country markets. According to Klines research, synthetic and semi-synthetic oils are gaining ground against conventional formulations, especially in the industrial lubricants and fluids segment, due to their higher quality and longer operating cycles.
Global penetration of synthetics oils, excluding process oils, was estimated at 13 percent in 2015, and is forecast to reach 15 percent by 2020. By volume, demand for synthetics is slated to grow 2.9 percent – nearly five times as fast as the overall industrial segment.
The message here is that, yes, there is a flat market, but with plenty of opportunity for premium products, synthetics and semi-synthetics, Morvey said during his presentation.
Penetration of synthetics and semi-synthetics is highest in Europe and North America, with Asia-Pacific, Africa and the Middle East, and South America lagging behind. Morvey attributed this to the equipment used and different equipment maintenance practices.
In the U.S., synthetics penetration was estimated at 20 percent in 2015 and expected to reach 22 percent by 2020, even though total volume is flat. Here in the U.S., on the consumer automotive side, were seeing very rapid advancement to synthetic passenger car motor oil, and a lot of that is being driven my OEM technical demand, Morvey added.
Morvey cited an industry in the United States where demand for synthetic lubes is growing relatively fast: power generation, which last year accounted for 14 percent of total demand for industrial oils and fluids.
New alternative types of power and sourcing, and more wind turbine installation both on and off-shore, has a pull-through effect for synthetic gear oils and synthetic grease, Morvey said.
Globally, compressor and refrigeration oils are the category of industrial lubes expected to see the highest penetration of synthetics: 60 percent by 2020.
Compressor fluids is an interesting category, Morvey said. The OEMs in that space have done a very good job of creating demand for synthetics, especially their own branded synthetics. They tie extended warranties and longer oil drain intervals into the use of their genuine oils, and its benefited some suppliers, but its really created a strong demand for synthetics in the compressor category.
On the other hand, more than 70 percent of refrigeration oils will be synthetics in 2020. We see [refrigeration oils] as a growth category, especially in mobile air conditioning units, said Morvey. Vehicle production and sales in Asia, Africa and South America is growing, and more cars are coming standard-equipped with A/C. That has a pull-through effect for synthetic refrigeration oil.