$65 Million Specialty Lubricant Niche: Ready for Take-off?


PRAGUE – Central and Eastern Europes appetite for greases and specialty lubricants may be poised for real growth, but differences abound among the countries of the region. One common factor is cultural pride and sensitivity, an experienced grease manufacturer cautioned-just dont call themEastern Europe.

Speaking at the European Lubricating Grease Institutes Annual General Meeting here on Monday, Roman Vanecek of Dow Corning highlighted opportunities for greases and specialty lubricants in Central and Eastern Europe (CEE).

In contrast with shrinking demand in North America and Western Europe, lubricant demand in CEE is increasing, said Vanecek, a technical service specialist based in Wiesbaden, Germany. The lubricant markets in Western Europe and the CEE are now roughly the same size, together representing about 13 percent of total global demand.

Countries of CEE see themselves split into three groups geographically. First are the countries of Central Europe: Czech Republic, Hungary, Poland, Slovakia and Slovenia. Second are the countries of South Europe: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania and Serbia and Montenegro. Third are the countries most closely identified with the former Soviet Union: Belarus, Estonia, Latvia, Lithuania, Russia, Ukraine and Moldova.

These countries are sensitive, cautioned Vanecek. If you want to do business there, dont call them Eastern Europe. They pride themselves on being in the center of Europe, and eight have already joined the European Union, with more striving to join.

Comparing foreign direct investment in the CEE countries to their annual growth ofgross domestic product,Vanecek noted that clusters of countries share similar profiles. Poland, Hungary and the Czech Republic have proven highly attractive to foreign investment, pulling in some $4 billion to $6 billionper year, while maintaining annual growth in GDP of 3 to 7 percent per year.

The next cluster of countries includes Romania, Slovakia, Bulgaria and Croatia, where GDP growth is also 3 to 7 percent per year, but foreign direct investment is much lower, about $1 to $2 billionannually. Most of the remaining countries are even less attractive to foreign investors, bringing in well under a billion dollars a year although their GDP growth falls in about the same range. Ukraine is an outlier, Vanacek noted. Despite its high GDP grow of nearly 10 percent per year Ukraine has attracted less foreign direct investment than Romania or Slovakia.

Focusing on specialty lubricants, defined to include greases for automotive and electronic manufacturing, antifriction coatings for the auto industry, pastes for automotive and chemical industries, and lubricants and greases for the food and beverage industry, Vanecek noted that this is currently only a U.S. $65 million total market in 13 of the regions key countries. Major country markets include Russia, where specialty lubricants bring $2.8 million a year; Poland, $1.58 million; and Czech Republic, $1.45 million.

Drilling down even further, Vanecek looked at the total demand for food-grade H1 lubricants in the same 13 countries. Total demand is just 331 metric tons per year. Czech Republic leads in H1 demand, reflecting its increasingly modern food and beverage industry, consuming 82 tons annually. Poland consumes 76 tons of H1 lubes, Hungary 65 tons, Slovakia 25 tons, and Russia only 21 tons.

By contrast, Vanecek noted that H1 demand in the United Kingdom is 3,500 tons per year, and in the Netherlands its 2,500 tons per year. Market penetration of H1 lubricants is low in the CEE, said Vanecek, estimating that only 5 to 10 percent of the total potential H1 market is actually using these products. In Western European countries, market penetration ranges from 25 to 50 percent or more.

Czech Republic, Hungary and Slovakia offer strong, safe, open and continually growing economies, said Vanacek, summarizing opportunities in the grease and specialty lubricant markets in CEE countries.

Although its the biggest market, Russia is a challenge, said Vanacek. Strong local contacts are needed to penetrate this market. Grease buyers are often very conservative, he noted. For example, a plant manager might only be willing to talk to someone of his own professional level and education, who speaks his native language.

In Poland and the Baltic states, the market is strong, but industry is spread over a large geographic area. Its hard to define the target segment for specialty lubes in Ukraine and Romania, Vanecek concluded, and Serbia-Montenegro and Bosnia-Herzegovina are small markets with few opportunities.

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