Gathering comprehensive data on oil markets is challenging, and the Middle East is no exception. Mark Townsend explains how a research company interprets the facts and figures surrounding the regions shift to higher-grade automotive oils.
There is an ongoing debate over how rapidly the 4 million-metric-ton-per-year Middle East lubricants market is transitioning to higher-quality engine oils, but recent research shows the region continues to be a major mineral oil based market. Until recently, data on automotive aftermarkets has been scarce and usually confined to omnibus research, where data on a variety of subjects is collected at the same time.
Despite the paucity, Prachi Satoskar, automotive senior business group manager at market research company GfK, explained how lubricant trends are impacting engine oil markets during Octobers ICIS Middle Eastern Base Oils and Lubricants Conference.
GfK Middle East and Africa, the regional arm of Germanys GfK GmbH, collects data at the point of sale in Egypt, Morocco, Oman, Saudi Arabia and the United Arab Emirates. GfK does not track direct transactions made by manufacturers to the end consumer or to end users via wholesalers, but does include sales made in the manufacturers own brand shops. With the exception of Morocco, it gathers information on engine oil trends and plans to add automatic transmission fluids and gear oils in the future. Data accumulated by GfK provides information on product, buyer, purchase and equipment activity.
Research has also revealed the degree to which the Middle East suffers from counterfeiting, an issue that is gaining more attention. According to Satoskar, 2 percent by volume of the engine oil market in Saudi Arabia consists of look-alikes or counterfeit brands. The research uncovered 28 brands in Saudi Arabia with similar stock keeping unit codes of market leading brands distributed in the kingdom.
What Five Dollars Buys
In Dubai, 1 liter of passenger car motor oil costs U.S. $5, the most expensive in the UAE. That is followed by Abu Dhabi/Al Ain, where 1 liter of oil retails for $4.10 and $4 in the neighboring emirates of Ajman, Fujairah, Ras al-Khaimah, Sharjah and Umm al-Qaiwain. GfK argues that Dubais high cost is attributable to the combination of premium multigrade products and leadership in the passenger car motor oil category.
It is driven by the use of synthetic and semi-synthetic [lubricants], Satoskar said. Around 15 percent of the total UAE market is synthetic, 22 percent semi-synthetic and 63 percent mineral oil, but a downturn is putting pressure on the market.
PCMO accounts for 65 percent by volume of the UAEs vehicle lubricant market, with heavy-duty diesel engine oil accounting for the remaining 35 percent. GfK tracks the entire UAE and said that expenditure on infrastructure is one of the key drivers of the buoyant HDDEO market. According to data gathered by BMI Research, the UAEs construction sector is forecast to grow 9.7 percent in 2019 ahead of Dubais Expo 2020.
Meanwhile, the much-vaunted shift from monogrades to multigrades appears to be well underway. In 2017, SAE 20W-50 and SAE 15W-40 viscosity engine oils accounted for a hefty 93 percent by volume of the HDDEO market, according to GfK. Most of the six-member Gulf Cooperation Council has now embraced API CH-4 as the minimum standard for heavy-duty oils.
Back in PCMO territory, demand for premium brands is growing in Dubai and Abu Dhabi, as original equipment manufacturer specifications are increasingly pervasive. GfK estimates there are around 3,000 engine oil retailers in the UAE, in excess of 600 in Dubai, 800 in Abu Dhabi/Al Ain and 1,500 in the other emirates.
GfK segments the market based on an outlets turnover, using statistical analysis, but does not disclose how it arrives at the classifications. It ranks outlets from A to D, with A being the highest turnover. There are more than 1,200 A and B outlets in the UAE, and targeting those primarily in Dubai and Abu Dhabi is crucial to growth, said Satoskar. In Abu Dhabi, that is roughly 43 percent of the entire market, 46 percent in Dubai and 37 percent in the other emirates. (See graph on page 21.)
Saudi Arabia Gears Up for Vision 2030
At face value, GfKs research suggests Saudi Arabia, the GCCs largest automotive market, is about to see a revival in car sales as reforms reshape an economy hugely dependent on hydrocarbon revenues. A recent landmark decision by the government ending a decades-long ban on women driving is underpinning optimism. Whether that translates to a boost in auto sales is unclear. Despite its superficial appetite for reforms, Saudi Arabia remains a conservative society and a culture of male guardianship runs deep in many families. In the short term, that may limit the number of unaccompanied women drivers.
Still, GfK maintains a bullish outlook. By 2020, in the immediate aftermath of the lifting of the driving ban, GfK forecasts the number of women driving will exceed 2.1 million and non-fleet car sales to reach 1.49 million units, up from 690,000 in 2017. It expects that will boost lubricant consumption. GfK also anticipates barriers to women in work will ease and create new jobs, which look positive for the automotive and tertiary markets. Just as in neighboring UAE, the premium market for engine oils and higher prices is clustered in certain areas.
The kingdoms central and eastern regions are key battlegrounds for premium-brand engine oils, Satoskar said. But a government decree banning independent engine oil change outlets has shaken the sector, as have new rules on expatriate employment. That has further concentrated distribution, particularly in the western region.
The impact of Saudization has seen an outflow of the population in certain areas forcing the closure of some outlets, she said. Saudization refers to the state policy of increasing the number of Saudi nationals in the workforce and reducing expatriate participation in the private sector.
Even so, the western region, with 2,474 outlets and a 33 percent volume share, has both the highest number of outlets and largest market share, but it is a mass market. According to GfK, 69 percent of the engine oil market is mineral oil based. By contrast, the central and eastern regions have sizable semi-synthetic markets at 34 percent and 30 percent, respectively, although mineral oil market shares are both more than half in each.
These regions have the highest GDP and higher average selling price for premium products, Satoskar said. Original equipment manufacturer brands in Saudi Arabia are popular. They focus on the SAE 20W-50 segment with a share of around 73 percent and target prices in the $3 to $3.50 range per liter, she added.
Conversely, premium brands tend to concentrate on SAE 10W-30, 5W-30 and 10W-40. In total, GfK tracks 25 cities and 12 highways in Saudi Arabia.
Egypt and Oman
Nascent economic reforms and International Monetary Fund support have had a dramatic effect on Egypts economy. In the second of quarter of 2018, GDP grew 5.4 percent year-on-year, among the strongest recorded since the 2011 revolution, according to Capital Economics, a London-based economic research consultancy. That is boosting lubricants consumption in key sectors such as construction.
GfK estimates the total lubricant market in Egypt at 261.5 million liters per year and is heavily skewed toward diesel. It constitutes 88 percent of the total vehicle engine oil market, but unlike markets in the GCC, Egypt is a major consumer of monogrades with SAE 50 viscosity grade being the highest selling. GfK claims to cover 75 percent of the Egyptian population.
Overall, diesel engine oils constitute 63 percent of the market and gasoline vehicle lubricants the remaining 37 percent, GfK found. The latter is characterized by frequent oil changes at relatively low mileages using low cost engine oils.
In Oman, attempts to wean the sultanate off its oil income have seen a spike in public-private partnerships in a bid to spur infrastructure investment, which GfK believes will increase lubricant consumption. The Omani market is split at 79 percent gasoline and 21 percent diesel oils, but it is still a mainly mineral market for engine oils. Mineral oil based lubricants account for 76 percent of the market, with synthetic and semi-synthetic oils accounting for 12 percent each. SAE 20W-50 remains the leading viscosity grade with around 61 percent of the market followed by SAE 15W-40 at 15 percent.
At around 10 percent of the global lubricants market, the Middle East is a small but increasingly complex region. With so much of the recent discussions centered on technical developments, it seems the time has come for marketing-based decisions to lift the region to the next stage of development.