Indias lube market is now one of the worlds largest, and it is expected to continue churning ahead, especially on the industrial side of the market, according to a study by Kline and Co. consultants. African markets are tiny by comparison, but several have become big enough to warrant attention, says an official from Saudi Arabias Petromin. In the Middle East, an Enoc official says, the United Arab Emirates is leading an upgrade in quality, particularly in the automotive segment.

Indias Thirst for Industrial Lubes

Kline discussed its forecasts for India in a webinar in October as it unveiled its study, Opportunities in Lubricants 2010: India Market Analysis. Milind Phadke, a project manager with the firms Energy Practice, said Kline predicts lube consumption in the country will grow at an average annual rate of 3.7 percent through 2014 – a significant rate for this industry.

Industry analysts say India is already the worlds fifth-largest lube market, and Phadke said demand there should reach 2.2 million metric tons in 2014 – up from 1.8 million tons in 2009.

Kline, which is based in Parsippany, New Jersey, U.S., estimates that the industrial segment of Indias lube market will swell an average of 4.5 percent annually. At 950,000 tons in 2009, the industrial segment accounts for 51 percent of Indias total market. The study found growth potential in practically all of Indias end-use industries, as the government is investing heavily in transportation infrastructure and power generation.

Power generation and power transmission accounted for 24 percent of industrial lube demand, followed by chemicals with 20 percent, metals at 12 percent, general manufacturing (including automotive manufacturing and components, machine tools and agriculture equipment) with 11 percent, mining with 7 percent, and non-road transportation at 7 percent.

Kline found growing use of synthetics in applications such as wind turbine lubrication, captive power generation, textile machinery and compressors.

In all of these applications, the reliability of operation is very important, Phadke said. The downtime caused from failed lubrication far exceeds the cost of lubrication, and hence we see a greater use of synthetics. We are also seeing the use of synthetics in certain gear oils used in the cement and steel industry.

The commercial automotive lubricants market in India was 732,000 tons in 2009, Kline estimated, including 480,000 tons for on-highway vehicles and 252,000 for off-highway. Kline forecasts the combined demand to grow 3.3 percent through 2014.

Consumer automotive lube demand in 2009 was 182,000 tons, and Kline expects this number to grow 2.6 percent per year through 2014.

Car production and sales as a percentage of the total car population is quite high, and thats the reason why we see such rapid growth in the car population, Phadke said, and thats why the factory-fill volume accounts for nearly 13 percent.

African Markets Emerge

While India has drawn attention for years as a large market with enormous potential, Africa has long been largely neglected by the lubricants industry. But the latter deserves more attention and is beginning to attract it, according to Imran Mufti, general manager for exports at Saudi Arabian lube marketer Petromin. Speaking at the ICIS Middle East Base Oils and Lubricants Conference in Dubai in October, Mufti said the industrys growing focus on emerging markets is enhancing the attractiveness of several African nations. The continent as a whole has annual lube consumption of 1.8 million tons, and that level is expected to grow between 3 percent and 5 percent annually, Mufti said. Three quarters of demand is concentrated in key markets of Egypt, South Africa, Nigeria, Algeria, Morocco and Sudan.

Given the low levels of income throughout much of Africa, price remains a crucial determinant of purchase choices, followed by brand and quality, Mufti said. Price alone is responsible for 26 percent of buying decisions. Spare part distributors play an important role as a result of what he describes as suggestive selling and ongoing credits.

With the emphasis on price, quality therefore remains skewed towards lower lubricant grades, typically API CC, CD and CF and SAE 40 and SAE 50. For gear oils, GL1 and GL4 grades predominate. But Mufti added that the market is evolving towards higher tier lubricant quality, with considerable quantities of finished lubes imported from the Middle East. Still, shortages frequently occur, boosting the use of recycled oil.

Egypt has demand of 450,000 t/y, or 25 percent of Africas total. Higher viscosity engine lubricants remain in demand with API SF, CD and CF dominating in a car population of 4 million. Distributors and spare part outlets account for 60 percent of supply. Customs import duty is not levied if the import originates from Arab or African countries, and 10 percent is charged on imports from Europe.

South Africa is the second-largest market, at 360,000 tons per year, and remains attractive for several reasons, Mufti said. It has a car population of around 2.1 million and a large, diverse industrial base. The lube market is largely deregulated and broadly competitive with a high number of international brands, but quality levels are high relative to the rest of the continent, offering opportunities for bigger margins.

Another country that continues to excite many is Nigeria, Mufti said. Lube demand is 185,000 t/y. With 154 million people, it is Africas most populous nation, and it has a car population of 6 million. Demand for diesel engine oil is high because of the dilapidated nature of the power infrastructure in the country.

Key Nigerian industries include petrochemicals, power generation, mining, transportation, rubber and paper. One drawback is the countrys reputation for being one of the most institutionally corrupt in the region.

Algeria has its own problems, Mufti said, with a complicated import process that includes a 17 percent customs duty and foreign exchange restrictions that make money transfers subject to clearance. But lube demand there is 150,000 t/y, and the car population 1.3 million, Mufti estimated.

The continents fastest growing market is Sudan, but political issues continue to resonate, presenting a challenge for companies operating in the market. Lube demand is 87,000 t/y and the car population 1.4 million.

Morocco consumes 80,000 tons of lubes per year. It has a car and truck population of 1.8 million which consumes mostly low grade API-SF and CD oils. The market is dominated by government-related business that includes municipalities, mining, transport and rail.

U.A.E. Raising the Bar

The U.A.E. is a huge lubricant exporter and supplies both India and Africa along with numerous other countries. The high level of outflows stem from the fact that U.A.E. has enormous lube production capacity. Also speaking at the ICIS conference in Dubai, T.R. Kumar, manager of lubricant technology for Enoc International Sales, said the country has blending capacity of 1.25 million t/y – roughly 10 times greater than domestic demand. He added that actual export volumes are very large, but there is no data.

Lube consumption within the U.A.E. slumped heavily during the recession, Kumar said, falling from 135,000 tons in 2008 to 110,000 tons in 2009, excluding offshore marine oil supply.

U.A.E. continues to be a quality driven market compared to other markets in the region … [and] is the pace-setter to introduce new technology products in the region, said Kumar.

Thanks in large part to the Emirates Authority for Standardization & Metrology, or ESMA, a government agency, the minimum permitted gasoline engine oil standard in U.A.E. is API SJ, and the minimum diesel standard is CF. ESMA has proposed manufacturing surveillance for quality assurance, and plans to implement a lube oil market monitoring scheme throughout the seven emirates to upgrade oil quality standards, Kumar said. In addition, ESMA-approved oils will display an ESMA quality assurance logo.

The nation has already limited older vehicles on the roads, including a ban on taxis older than five years and a ban on imports of light vehicles older than five years and heavy vehicles older than seven years. The purpose is to boost the use of high quality lubricants and reduce pollution, Kumar said.

Demand for synthetics is rising in U.A.E., and multi-grade oils are becoming more popular due to the shortage of bright stocks, Kumar concluded. In the Middle East, we believe the thicker the oil, the better. But this perception has to change. Life would be boring without challenges.