If you compare it to the markets in North America and Europe, it offers attractive opportunities for companies that are in that business, said Geeta Agashe, director of Klines Petroleum and Energy Practice. Kline predicts that metalworking fluid demand in North America will be flat for the next several years.

According to the study – the second volume of Klines series, Global Business Opportunities in Metalworking Fluids, 2001-2003 – the biggest blot on the Asia-Pacific market is the slow pace of Japans economic recovery. Japan is one of the worlds heaviest manufacturing centers and accounts for 37 percent of the regions demand for metalworking fluids, but Kline projects its consumption to remain essentially flat over the next four years.

Demand in the rest of the region, however, is projected to grow 4 percent per year. The study said this growth is being driven by manufacturers from Japan, the United States and Western Europe that are investing in countries such as South Korea, Thailand, India and China, where labor costs are relatively low.

The companies supplying fluids for those manufacturers have similar origins, Kline officials said.

The 15 leading suppliers of metalworking fluids to the region are either Japanese, European, or U.S.-based, Engagement Manager Frans van Antwerpen said. Many of these companies formed joint ventures with local producers of metalworking fluids, resulting in increased local production by the leading suppliers.

Whereas most Western multinational oil companies stay out of the metalworking fluid business – BPs Castrol is the exception and is also a major player in Asia-Pacific – the sector remains important to their Asian counterparts, including Nippon Oil and Idemitsu of Japan, Chinas Sinopec and India Oil Corp.

We have no plans to stop selling metalworking fluids, said Masaki Tada, of Nippon Oil Lubricants & Specialties. I thinkthe reasonis that metalworking fluids account fora significant part of overall lubricant demand – 5 to 10 percent in Japan. It is still profitable for us.

Some of the regions larger fluid suppliers agreed with Klines conclusions, although the Petroleum Association for Japan estimates that metalworking fluid demand there is up approximately 3 percent this year.

Our financial base is pretty equally spread between the United States, Western Europe and Asia-Pacific, said Hank Limper, marketing manager for metal cutting and rust preventive product groups for Houghton International Inc., headquartered in Valley Forge, Pa. But our sales in some markets in Asia-Pacific – such as Thailand, Singapore and Malaysia – will be up by 30 percent this year, compared to the United States where our sales areflat.”

Kline said that China ranks as the regions second-biggest metalworking fluid market, with 28 percent of overall consumption, followed by South Korea, India and Taiwan. It added that much of the fluid consumption outside of Japan is currently general-purpose grade used for low-precision machining. It predicted, however, that increased investment by Western companies will lead to installation of more modern equipment and accelerate demand for more sophisticated, environmentally friendly fluids.

We see Southeast Asia as a real shining star, said Houghtons Limper. All of the big car companies are there and all the equipment is brand new. When we do our sales trips there, its really like calling on the United States on a much smaller geographical scale.