Russia Plays Catch-up on Engine Oil Quality


MOSCOW – Russia is one of the worlds most attractive lubricant markets – huge volume, booming economic growth and a high rate of investment and consumption -and it is quickly modernizing vehicle fleets and industrial infrastructure.

Yet Russian lube marketers face the risk of being largely shut out of the choicest chunk of that market due totheir inability to serve the growing population of foreign-branded vehicles. That was the message from several speakers during an industry conference in Moscow last month. Some said Russias lube industry needs to boost the quality of home-grown products if it wants to compete in its own engine oil market.

Russia consumed 1,754,000 metric tons of lubricants in 2006, according to Tamara Kandelaki, chief executive of Moscow-based InfoTec-Consult, who addressed the audience at the Lubricants Russia conference on Nov. 21. This marked a drop of 2 percent from 2005, but still made the country one of the four largest lube markets in the world.

There was some variation in estimates of the volume of transportation lubricants – including engine and transmission oils used in all types of transport. Kandelaki pegged the volume at 915,000 tons annually, while Boris Bunakov, chairman of the (Russian) Association of Automobile Engineers Committee on Fuels and Lubricants, gave an estimate of 1 million tons. Bunakov said on-road cars and trucks consume approximately 540,000 tons of lubes.

Russian companies currently provide most of that volume, but their products are generally of lower quality than those produced by foreign companies, and the market share for foreign companies is growing as foreign models come to be a bigger part of the vehicle fleet. Bunakov said foreign makes already constitute 21.5 percent of the passenger car fleet. By 2010, he said, they are projected to account for 25 percent of a fleet of 30 million cars.

In addition to imports being brought into the country, Ford, Renault and General Motors operate Russian factories with capacity to churn out 160,000 vehicles per year, said Maxim Donde, general director of LLK-International, the lubricant arm of oil giant LukOil. Volkswagen, Nissan, Great Wall, Toyota and PSA Peugot Citroen plan facilities that could produce in excess of 235,000 more.

None of the speakers at the two-day Lubricants 2007 conference offered estimates of automotive lubricant sales by foreign companies, but Kandelaki said ExxonMobil is the dominant foreign supplier, with imports of 26,300 tons in 2006, up from 23,000 tons the year before. Shell and BP followed with 2006 sales volumes of 15,100 tons and 10,900 tons, respectively, she said. InfoTec-Consult pegs total finished lube imports at 250,000 tons annually.

Speakers said foreign lube companies have an advantage offering oils for these vehicles because of existing relationships with the automakers. But some said the quality of Russian lubes is also part of the problem. Bunakov said much of the motor oil produced by Russian companies is obsolete compared to Western standards.

In Russia, the process for developing oils of new groups and required methods for their testing has, for 25 years, found itself in an unchanged and depressed state, he said.

Russian speakers said they recognize the strides that the domestic industry needs to make. Donde said LukOil is negotiating with foreign automakers to supply factory fill lubricants to their Russian factories. He insisted that LukOil is well-positioned for such arrangements because of the quality of its base oils and the cost advantages that come with local production.

Plus, we are so keen to get into this business that we are willing to go out of our way to make the customer happy, he said. I think the package we are offering in Russia does not have an analog in Russia.

Kandelaki expressed surprise that Russias competition authorities have not stepped in. She also hopes Russian lubricant marketers will begin to catch up to the foreign competition.

We wish the Russian brands will make the improvements they need to make in order to compete, she said. It is not just a matter of business, it is also a matter of patriotism.

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