Prospects Looking Up in South America


LONDON – Lubricant demand in South America is at last growing and by 2007 the regions need will pass 2.5 million tons per year, from about 2.3 million metric tons in 2003, predicts an official with Brazilian oil giant Petrobras. That may not sound like much, but after more than six stagnant years, its a cause for celebration.

Political and social tumult certainly have cast a shadow over the regions industrial progress, but there are signs of recovery, says Renato Marques de Oliveira, lubricant coordinator for Petrobras in Rio de Janeiro. Overall economic growth was 5.5 percent last year, the second consecutive year of growth. Inflation abated to 7.5 percent, unemployment fell to 10 percent, exports rose.

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Look closely at the continents top 10 lube markets and youll see a far from cohesive picture, however. The leaders in one market can be also-rans in another; multinational brands are forces in some markets, and manage but a toehold in others; and lubricant logistics and quality also vary widely.

Brazil by far leads the continent in industrial activity – aircraft and automobiles are among its strongest exports – and with a finished lubes market of 1.2 million tons in 2004, it consumes more lubricants than the rest of South America combined, de Oliveira told the ICIS-LOR World Base Oils Conference here last month. The next-largest lube consumers are Argentina (260,000 t/y), Venezuela (230,000 t/y), Colombia (150,000 t/y) and Chile (135,000 t/y).

Overall, Shell – including its Pennzoil and Quaker State brands – leads the South American market for finished lubricants, with a 13.6 percent share. Next are ChevronTexaco with 18 percent, and ExxonMobil with 14 percent. Petrobras holds 8.2 percent, trailed by Castrol with 4.4 percent market share. That leaves 41.8 percent of the continents demand to be filled by others, including hundreds of scrappy and not always trustworthy independents, indicated de Oliveira.

The continent has 10 base oil refineries: three in Brazil, two in Venezuela, one in the Antilles, two in Argentina, and one small one each in Colombia and Bolivia. Here too, Brazil leads the pack, producing 752,000 tons of base oil in 2003.

In terms of size, Petrobras ranks 15th among oil companies worldwide; it controls 98 percent of Brazils refining industry, including those base oil plants. So its somewhat surprising that on its home turf, Petrobras holds just 18 percent of the total lubricants market, chased very closely by ChevronTexaco at 17 percent, and privately owned Brazilian marketer Ipiranga with 12 percent. Shell (8 percent) and ExxonMobil (7 percent) are here too, as are a feisty mix of international brands: Spains Repsol, FL and Agip from Italy, and BP Castrol, each with 2 to 5 percent of the market. More than 150 other companies vie for a piece of the remaining 22 percent.

Some of these put strange products in the market, like SA engine oil without quality or additives, at very low prices, which makes it hard to compete, de Oliveira allowed. The government mandates that the minimum quality level of passenger car motor oil should be API SE (soon to be raised to SF), yet poor quality oils persist.

De Oliveira went on to provide thumbnail sketches of the regions other principal lube markets, beginning with the second largest, Argentina. Repsol-YPF is the leader here, with 37 percent of the total lube oil market, followed by Shell (24 percent) and ExxonMobil (12 percent), he said.

One of Argentinas success stories has been Total, which markets its lubes largely under the Elf label. Elf grew because of French cars having a very good part of the vehicle fleet in Argentina, de Oliveira said. Argentina is a net exporter of both base oils and finished lubricants. Lube oil centers are the fastest growing retail channel for lubricants in Argentina for PCMO, and are taking market from service stations, he pointed out.

Close after Argentina in terms of market size is Venezuela, where the unmistakable lubes heavyweight is Deltaven, the marketing arm of Petroleos de Venezuela S.A., with 28 percent of the market. Majors that are stronger elsewhere – Shell, ChevronTexaco, ExxonMobil, BP – each can only muster about 5 to 7 percent of Venezuelas lube sales. Otherwise, Venezuelas lube market is pulverized into many little domestic companies, each having a very small share of market, de Oliveira said, adding, Interestingly, this is the only country in the region where youll find a BP-branded presence; elsewhere youll find the Castrol brand, not BP.

Colombia has a widely dispersed population, and this less-concentrated population makes logistics more difficult, observed de Oliveira. Demand for lubricants is growing, thanks to an expanding vehicle fleet, and automotive oils (especially diesel engine oils) are 57 percent of the market. Colombia has a very good risk classification, he added, the second best in South America, after Chile.

Colombias lube leaders are multinationals like ExxonMobil, Shell and Chevron Texaco, who together hold sway over 70 percent of the market. Colombias own Terpel S.A. is the one to watch however. It has captured 13 percent of the lubricants market and has vowed to make it 30 percent by 2010.

Chile is South Americas only country where the Mobil brand has a big presence, and here it holds 30.8 percent of the market, de Oliveira related. Chile also sees dynamic renewal of its vehicle fleet, with the average car only 3 years old. This may be one reason why engine oil consumers have high [confidence] in OEM recommendations, he suggested. Chiles mining industry is a significant user of lubricants, as well.

None of South Americas other markets has topped the 100,000-ton mark yet, although a couple are coming close. With 93,000 t/y of lubes consumption, Peru looks promising, for example. Lima, the capital city, has 11 million inhabitants – more than 70 percent of the market, which is good for logistics, de Oliveira noted. Shell and Pennzoil-Quaker State each have a blending plant here, which may be ripe for consolidation, he speculated.

Ecuador (72,000 t/y) has just 8 million inhabitants, but it has a culture of [doing] oil changes in a short period, giving it an unexpectedly high lube consumption, de Oliveira said. Texaco, the lube leader, distributes its branded products here through a strong and well-organized system. This is the only country where I found Valvoline so strong in the region, with 14 percent of the market, he added.

Bolivia (population 8 million, lubes demand 20,000 t/y) presents many challenges, beginning with its logistics. The roads are so bad that your drums reach the market almost destroyed, de Oliveira related. Petrobras has seen significant success in this under-served country, and today has a 15 percent market share, from only 4 percent of the market here one year ago, pointed out de Oliveira. The largest brand is YPFB, and its products are made under contract at Bolivias only blending plant – a Petrobras facility that also makes Petrobrass Lubrax oils, the Number 3 brand (after Shell).

Despite a national agency that registers lube products and sets a threshold quality for PCMO, poor quality oils plague Bolivia. Some extralegal marketers cross into Argentina, buy cheap lubes there, and bring them back for sale. There is also recovered oil being sold, de Oliveira said, from those who buy used oil, just filter it and then re-sell it.

Uruguay (22,000 t/y) also has one lubricant blending plant, operated by ANCAP. SA and SB oils are present, and other fishy products too, de Oliveira said. Some will buy base oil and bring it in as process oil, then put it in someone elses drums and sell it as lubricants. Four companies manage all of Uruguays service stations, and its base oils are all imported.

Paraguay is more diverse, and consumes about 18,000 t/y – all imported, he pointed out. Shell leads the market with a 26 percent share, followed by ChevronTexaco (16 percent), Petrobras (12 percent), Ipiranga (10 percent) and ExxonMobil (6 percent). That still leaves 30 percent to be shared by the 130 other brands that crowd this tiny market.

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