Ukraine: Big Lube Appetite, Meager Output


With annual demand of more than 400,000 metric tons, Ukraine is easily the second-largest lubricant market in Eastern Europe, ranking only behind Russia. It produces very little of that volume, however – less than half in 2003.

Domestic production took a big step forward last year, according to a recently published study by a Ukrainian consulting firm. But the firm, Kiev-based Lubricants Marketing Studio, predicts the trend will not endure. The biggest obstacle is lack of base oil availability.

The study, Ukranian Lubricants Market – 2004, pegged demand at 412,000 tons last year. That volume represents an increase of 2 percent from 2003. It also accounts for 7 percent of demand for all of Europe.

But despite its appetite for lubes, Ukraine exercises little muscle when it comes to making them. The country produced just 222,000 tons in 2004, and that was 16 percent more than the previous year.

Lubricants Marketing Studio Director Volodymyr Svyatnenko blamed the situation on the countrys base oil market.

The main problem is a deficit of base oils, he told Lube Report, noting that Ukraine has but a single base oil producer, Ukrtatnafta, which operates a plant in Kremenchug. That plant has capacity to make 380,000 tons per year of API Group I oils, but Ukrtatnafta uses much of the volume to make its own bulk lubricants and exports much of what is left.

Only a small part of Ukrtatnaftas base oils are available to independent manufacturers in Ukraine, Svyatnenko said. In addition, it has not been practical to bring Russian base oils here. Instead, Russia sent finished lubricants, and these products as well as Ukrtatnaftas undercut Ukrainian independents on price. Consequently, the country makes scant use of its lube blending capacity, estimated by Lubricants Marketing Studio to be 750,000 tons per year.

The firms study found that Ukrtatnafta holds a 34-percent chunk of the finished lube market. Russian refiners Lukoil, Yukos and Slavneft claim another 25 percent. Ukrainian independent Azmol has a 9 percent market share to rank a distant third behind Lukoils 17 percent. Besides Azmol, there are only some 20 blenders of finished lubricants in Ukraine.

Lubricants Marketing Studio said there are nearly 160 brands of finished lubes competing in Ukraine, most of them imported by small trading firms targeting the premium segment of the automotive market.

The large number of participants in the market creates intense competition, the firm said, yet indicates strong perceived business potential in this segment. Importers stay in the high end of the market because they cannot compete on price with products from the Ukraine and the rest of the former Soviet Union. Bulk oils accounted for 74 percent of total lube demand in 2004, compared to just 26 percent for packaged products.

Of total volume of lubes demanded in 2004, 55 percent were automotive oils, 39 percent were industrial oils and 6 percent were greases.

The quality of lubricants used in Ukraine is generally low. For example, Svyatnenko said, most of the passenger car motor oils consumed in 2004 were equivalent to API SE, while most diesel oils were API CB or CC. Nevertheless, demand has begun shifting to higher quality products as the country begins to replace old vehicles and out-of-date equipment.

I think the situation will start to change significantly in the near future, Svyatnenko said. At the same time, his firm projects volume to decrease.

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