Fragmentation, low barriers to entry and an appetite for more players means the worlds third-largest finished lubricants market has significant potential, said Sanjay Kumar, chief general manager of business development at government-owned Hindustan Petroleum Corp. Ltd.

Indias annual demand for finished lubricants is growing at a compound annual rate of around 2.5 percent and could reach 2.7 million metric tons by 2021 from an estimated 2.4 million tons in 2016, according to the United States-based consultancy Kline & Co.

Growth of Indias lubricants industry is projected to be the largest in the world in terms of volume for at least a decade, and that presents opportunities for domestic as well as foreign players, Kumar said.

India has more than 35 well-established lubricant companies and over 500 regional players with good local brand reputations, but suppliers can still improve their prospects by co-branding with original equipment manufacturers, increasing distribution channels and communicating with consumers through relevant brand strategies, Kumar said.

Economic Engines

A booming population is driving demand for lubricants, Kumar noted. The United Nations estimates there will be 1.63 billion Indians by 2050, up from 1.26 billion in 2014. Urbanization will also reach 50 percent, up from 32 percent over the same period. More people means greater demand for vehicles, which is growing at an average rate of more than 10 percent per year from the current estimated 182 million units, he said.

Everybody is aspiring for a good and enhanced standard of living. That means more vehicles and more manufacturing activity, Kumar told those gathered at the All India Base Oil, Lubricant and Wax Conference earlier this year.

The Indian automobile industry, which includes passenger, commercial, three-wheel and two-wheel vehicles, produced 29.1 million units in the financial year ending March 2018, up 14.7 percent from the same period the previous year, according to data from the Society of Indian Automobile Manufacturers.

Lube Opportunities

The countrys new Goods and Services Tax, which simplified its sales tax regime in 2017, should also present further opportunities for Indian producers. Base oil incurs GST of 18 percent, down from 28 percent, reducing the cost of lubricants for local manufacturers. GST should also reduce operating costs due to faster movement of goods and less complicated logistics procedures.

Another boost is the governments plan to jump directly to Bharat Stage VI from the BS IV automobile emissions standard in 2020. BS VI is equivalent to the European Unions Euro 6 standard, and compliant vehicles will require more advanced engine oils due to changes in engine design. The move offers huge growth potential to companies that can quickly reorient their supply chains and launch products ahead of implementation.

Multi-brand servicing, used oil collection, vehicle aggregators and packaging are some other areas with growth potential, Kumar noted.

Segment Leader

According to Kline, the industrial segment accounts for 52 percent of Indias lubricants market, while the commercial and consumer segments account for 31 percent and 17 percent, respectively. Process oil is the largest product category, followed by heavy-duty motor oil, other auto oils, general industrial oils, motorcycle oils, industrial engine oils, passenger car motor oils, metalworking fluids, greases and others.

Anuj Kumar Singh, project manager for Klines energy practice, said on the sidelines of the conference that finished lubricants demand in India will primarily be driven by the consumer segment. He added that a revival in the commercial and industrial segments will also add to the demand, but new demand creation from some consumer segments will be faster than commercial and industrial lubricants. The primary driver will be strong sales of two-wheelers and passenger cars, Singh said.

Indias two-wheeler market, which includes motorcycles, scooters and mopeds, has already surpassed Chinas and will continue growing as vehicle ownership rises. The two-wheeler segment accounts for about 80 percent of Indias automobile market.

Sales of two-wheelers rose by more than 15 percent year-on-year to 23 million units in fiscal year 2017-2018, while sales of passenger vehicles increased 6 percent to 4 million units during the same period, the Society of Indian Automobile Manufacturers data showed.

Singh projected the consumer segment will grow at a compound annual rate of 6 percent, the commercial segment at 2 percent and the industrial segment at 1.6 percent through 2021.

Kline estimates the process oil segment, including transformer oils, white oils and rubber process oils, will grow at a rate of 1.7 percent through 2021. The process oil market in India was estimated to be 675,000 tons in 2016.

Singh said that there are hardly any exports of base stocks from India, as domestic production lags consumption, but the country is an active exporter of white oil and transformer oil. The major export destinations are Africa, the Middle East, South America and Southeast Asia.

Imports to the Rescue

To meet domestic lubricant demand, India will continue to rely on imports of raw materials, as local supply cannot meet demand, industry officials said. The country imports about 2.5 million t/y of base oils from South Korea, the United Arab Emirates, Singapore, Spain, the United States, Bahrain, Iran and Saudi Arabia, among others.

Imports will keep on going, Ashish Navalkar, deputy general manager of supply chain at Gulf Oil Lubricants India Ltd., told LubesnGreases, adding that lower production of base stocks, relatively higher local prices and logistics-related challenges are companies key concerns.

Shailendra Gokhale, managing partner of Mumbai-based Rosefield DAA International Consultancy LLP, agreed, saying that base oil imports will continue as Indias state-run companies have no plans to increase capacity in the near future. There are also no signs that some of the multinational companies will come to India and start making base oils locally.

Given the growth opportunities in India, refineries in the Middle East and South Korea will continue to dump base oil into this market, said Gokhale, who offers specialized consultancy services in the lubricants sector.

CEO of GP Petroleums Ltd. Hari Prakash Moothedath told LubesnGreases that unless Indian refineries increase output, imports will continue because of strong demand for base stocks, which are widely consumed outside lubricants applications in India.

The country has four plants with combined capacity of 1.2 million t/y. Hindustan Petroleum has 42 percent of this capacity, Indian Oil Corp. Ltd. 22 percent, Bharat Petroleum Corp. Ltd. 19 percent and Chennai Petroleum Corp. Ltd. 17 percent, Kline estimated. About 60 percent of domestic capacity is API Group I base stocks, and the rest is Group II and III.

Hindustan Petroleums Kumar said that the state-run company has plans to expand capacity, and the total share of base oil imports in overall demand will come down. However, imports cannot be avoided altogether.

Indian base stocks producers will try to maximize… production from their existing facilities. However, we havent heard of any expansion plans requiring capital investments, Klines Singh stated. In that event, the deficit for base stocks will primarily be met through imports. With a growing demand and a flat production profile, the deficit will widen in future, he added.

According to Kline, Group I stocks are still in high demand for HDMO, industrial engine oil, general industrial oils, metalworking fluids and greases, but their usage remains moderate in PCMO and process oils. For Group II stocks, PCMO, HDMO and process oils are the biggest application areas. However, their use in industrial engine oil, general industrial oil and grease remains limited. Group III stocks are mainly used in PCMO, while the market for Group IV and other synthetics is very small. Naphthenics are primarily used in applications such as metalworking fluids, greases and process oil.

Singh said that technical and supply factors will shape demand for base stocks over the next five to 10 years, but Group III will grow the fastest, although from a smaller base. He added that Group II will see moderately high growth thanks to the shift toward better quality lubricants, while the market for Group I will shrink but certain applications will continue as core areas.

Growth prospects for the Indian lubricants industry will remain bright despite the markets complexities. The country, however, will continue to depend on imports of base oils to fulfill its requirements.