As Eastern Europe moves westward in a political sense, Western manufacturers are moving eastward in a physical sense. And that spells opportunity for metalworking fluid producers in terms of dollars and cents – or rather zlotych, lei and korun.
That is the prognosis of a new study from Kline and Co. consultants, which predicts that fluid demand will grow at healthy rates in Eastern Europe for the next five years, while falling in the western part of the continent.
Outside of Russia, Eastern Europe represents about 15 percent of European consumption of metalworking fluids, but we see this percentage growing, said Frans van Antwerpen, project manager for Klines Petroleum and Energy Practice. With eight new members of the [European Union] located in Eastern Europe, there are obvious incentives for Western European metalworking fluid suppliers to focus their efforts there.
Klines study, the latest volume in its Global Business Opportunities in Metalworking Fluids series, pegs annual fluid demand for Europe, excluding Russia, at approximately 540,000 metric tons. Of that amount Poland, Romania, the Czech Republic, Hungary, Belarus, Slovakia, Slovenia, Ukraine and the Baltics account for 81,500 tons.
For the continent as a whole, the study projects fluid demand will decline slightly over the next five years. In Eastern Europe, however, it expects demand to grow at a rate of approximately 3 percent per year.
The prediction for eastern countries is based mostly on the fact that they are orienting their economies toward Western Europe. EU membership eliminates duties on imports within the region and creates a relatively uniform regulatory trade environment. Western manufacturers have already begun moving operations to parts of Eastern Europe to take advantage of lower labor costs. Kline predicted the movement will continue and that fluid suppliers will follow – either by building new plants or acquiring local blenders.
Currently, Kline said, most metalworking fluids used in Eastern Europe are still imported as concentrates from the West – particularly water-miscible products, which are essential for modern production facilities.
The local blenders dont have the technology to produce high-quality water-miscible fluids right now, but with an acquisition, technology transfer is eased, and the Western supplier has an immediate production base, van Antwerpen said.
Kline said Poland has the largest fluid market in the region, with annual demand of 25,000 tons. It is followed by Romania and the Czech Republic, with 12,000 tons and 10,000 tons, respectively.
Russia is a far bigger fluid market – the biggest in Europe – and a different animal altogether, Kline said. Russia only imports approximately 10 percent of the fluids it uses. The nation consumes mostly neat oils and water-soluble oils, but the consulting firm expects use to shift toward water-miscible fluids as industry modernizes its equipment.
There are definitely growth opportunities in Russia, but they are not as clearly defined as those in other Eastern European countries, van Antwerpen said. Foreign suppliers will have to make an investment in local production in order to establish their position in the market. He noted that BP Castrol and Fuchs have already started blending in Russia on a small scale, and that others plan to do so.