It will be a more difficult market, General Director Tamara Levanovna Kandelaki advised in a telephone interview Monday. It is true that demand will shift toward higher quality lubricants and that these have higher margins. But the level of competition will rise as overall volume is reduced.

Estimates about the size of Russias lubricant market vary considerably. InfoTek-Consults study, Russian Market of Lubricants 2004/2005, pegs yearly demand in the country at 1.8 million metric tons, placing it behind the United States and China and ahead of Japan in global rankings.

There are also differences of opinion about future trends for the market. In February, for example, Cleveland, Ohios Freedonia Group released a global study predicting that lube demand volumes in Russia will swell at an average annual rate of 3 percent to 3.5 percent through 2008. InfoTek-Consult, however, expects the market to grow just 1.8 percent per year through 2007 and to shrink 0.6 percent per year after that.

The Moscow firms forecast is based on the assumption that an improving economy will allow the nation to replace old vehicles and equipment. It cited government estimates that 50 percent of Russias automotive fleet is more than a decade old and that another 30 percent is 5 to 10 years old. Eighty-six percent of cars and 94 percent of trucks require motor oils of no better quality than Euro 0, whereas the Euro 5 standard has been introduced in Western Europe. Russias industrial infrastructure is 50 to 60 percent depreciated.

There is more money in the country now, Kandelaki said. As the gross domestic product grows further, it will bring an increase in the share of new vehicles and will allow businesses to replace existing equipment. When that happens, consumption of lubricating oils will decrease because those vehicles and machinery use better quality oils.

The transportation sector of Russias lube market is responsible for 53 percent of demand, according to the InfoTek-Consult study, with the industrial sector claiming the rest.

The country is also a large and growing lubricants exporter. InfoTek-Consult estimates that the nation had 978,000 metrictons of exports in 2004, compared to 193,000 tonsof imports, although the former number included a large volume of base oils and industrial oils that do not have additives. Total lube production last year was 2.6 million tons.

The biggest producers are seven oil companies: LukOil, Yukos, TNK-BP, Slavneft, Sibneft, Nov-Ufimskii Refinery and Tatneft. LukOil alone is responsible for 46 percent of in-country production. InfoTek-Consults study says the market also includes approximately 80 independent marketers – half of which are involved in blending – and more than 200 importers.

The small amount of medium- and high-quality lubes that are used in Russiais mostly for imported vehicles and machinery, but Kandelaki said Russian marketers – at least the large oil companies – appear well-positioned to compete as the market shifts toward better products. In general, she said, those companies have made recent plant investments or are planning to do so. The exception, she said, is Yukos, which is mired in a bitter dispute with the government over allegations of tax evasion.

The other companies are preparing themselves, but Yukos, of course, is having problems, Kandelaki said. It may be a year before that is settled and we know what is going to happen with the company.

InfoTek-Consult is a market research firm that concentrates on Russias oil and gas industry. Russian Market of Lubricants 2004/2005 is more than 400 pages and is priced at U.S. $6,000. The study was published in Russian; English translations are available for additional cost. For information, visit www.citek.ru or contact InfoTek-Consult by phone at +7(095) 792-57-83.E-mail: consult@citek.ru