Corradi explained that despite the slight recovery of vehicle sales and production in the West following the economic recession, the global crankcase lubricants market is likely to grow by only 2 to 3 percent annually through 2020. In this slow growing market with demands for investment in cleaner, greener and more effective products we must look further to ensure a healthy future, and the East is a place with a lot of potential, he said.

Although economies such as those of China, Russia and India are slowing, their demand for cars, trucks and motorcycles is still going up, according to Infineum. As these markets mature consumers are increasingly looking for more advanced and luxury vehicles that come with greater performance requirements, Corradi said 16 November. His presentation was the 2012 version of Infineums annual Trends report.

[As vehicle] technology [becomes] increasingly global, original equipment manufacturers increase their presence in these markets, he said. At the same time, indigenous manufacturers up their game to meet tightening emission legislation. As a result, he continued, quality upgrades in vehicle technologies are increasing demand for higher quality lubricants. This presents an opportunity for companies with partnerships in global facilities to supply these rapidly growing markets.

Chinas Burgeoning Market

China is the worlds second largest economy and is currently trying to establish steady economic growth and social stability in an increasingly uncertain world economy, Corradi said. Many economists question just how fast the Chinese economy will slow down. The countrys sale of new vehicles is healthy but slowing as government incentives subsidizing production come to an end.

In 2011 Chinas total vehicle population increased by 18 percent, and Infineum believes this trend is likely to continue. Some estimate that there will be up to 400 million vehicles on the Chinese roads by 2030, putting it ahead of the United States, and making it the worlds largest single automobile market, Corradi said.

Despite this high growth rate, Chinas car density per capita is still expected to be substantially lower than in the U.S. or Europe.

Through the first 11 months of last year, Chinas passenger car production was up 4.2 percent compared to 2011, reaching 14.48 million units, according to Infineum. Local OEMs account for 30 percent of total passenger car production with Chery, BYD and Geely being the most popular brands. With more vehicles on Chinas roads, the challenges of increased congestion and pollution require action by the cities, and the government introduced nationwide emissions limits equivalent to Euro IV, Corradi said.

These evolving emission standards are an opportunity for oil marketers to provide high-quality long-drain lubricants, meeting the needs of advanced hardware technologies. China introduced a so-called Phase 3 fuel economy standard, which means that locally manufactured cars must exceed the required fuel economy limits before they go on the road, while imported vehicles will be subject to additional taxation if they dont comply, Corradi commented.

The Chinese lubricant market is potentially the highest growth market in the world. Many local companies have established blending [plants] and some do significant marketing, Corradi said. [M]ost imports are marketed through distributors. State oil majors PetroChina and Sinopec dominate the market, while Shell is the biggest international oil major, followed by ExxonMobil, BP and Chevron.

China has a big market for low-tier oils, meaning that API Group I base oils are still the mainstream, accounting for more than 60 percent of base oil demand. Group II base stocks have about 30 percent share, while Group III and IV base stocks are only used in top-tier finished products and currently account for less than 10 percent of demand. However, a rapid increase in vehicle production, [more] imported vehicles, higher restriction on emission limits and growing emphasis on fuel economy, would push automotive lubricant quality up very quickly, Corradi observed. He added, though, that a big gap will remain between oil quality in China and Europe or the U.S.

Infineum expects the overall lubricant market in China to amount to 5.3 million tons by 2015. The countrys national lubricants specifications are almost the same as the API system, and as a result, lubricant companies currently follow API. Some European producers have introduced their own specifications into China. In our view, the country will stay with the API system for some time but quality will see a huge shift forward, Corradi said.

Last year the Chinese government introduced its 12th five-year plan, which aims to secure long-term prosperity for the nation and to address some of the sustainability issues the economy is facing. The plan makes the development of new energy cars such as electric and hydro-electric vehicles a top priority, Corradi said. The plan sets a target of having one million electric vehicles on Chinese roads by 2015, a feat that would require approximately U.S. $15 billion in investments in the next 10 years. This will encourage foreign OEMs to share expertise, Corradi said, adding that China has already made a significant investment in this field and has the most extensive network of charging facilities in the world.

Russian Market Advancing?

Russias economy bounced back very quickly from the recession and continuing growth is expected, according to Infineum. Although local OEM Avtovaz still dominates the car market, foreign brands are gaining popularity. High car import duties mean that vehicle manufacturers have been rushing to invest in local production facilities, which increased their product offerings and improved vehicle quality.

In the last few years, car sales in Russia grew 39 percent, reaching 2.6 million in 2011. Last year commercial vehicle OEM Kamaz reported that sales rose 40 percent, or by 39,000 units. Low penetration of foreign truck brands owes to the high import duties, but some international truck manufacturers are trying to establish a foothold here too, Corradi said.

In December 2011 Russia joined the World Trade Organization, which is expected to accelerate change in the countrys auto industry, Corradi said. Industry analysts expect the country to overtake Germany as Europes largest market, with passenger car and commercial vehicle sales to soar 30 percent and 50 percent, respectively, in the coming years.

Furthermore, import duties are set to fall, which means increased imported vehicles sales, a move that could prompt some automakers to postpone investments. Increased car production in Russia will lead to local and foreign automaker collaborations, Corradi predicted.

Russia is the worlds fourth-largest lubricants market, and Infineum expects a rise in both production volume and quality. Around 70 percent of the crankcase lubes are GOST [the countrys national specification] and low quality API lubes specifications, Corradi said, adding that as in India, Brazil and other developing countries, a large proportion of premium quality lubes meeting API, ACEA and OEM specifications are covered by imports of Western lubes.

The share imported passenger car lubricants in the country is above 50 percent, so GOST is no longer driving the market, LLK International General Director Maxim Donde said in a video segment that was part of Infineums presentation. He later made similar comments during an e-mail exchange with LubesnGreases. It is a reflection of the foreign automakers getting into the country very fast. The situation is different with commercial vehicle lubes. We estimate that the share of the imported lubricants in this segment is around 12 percent and their growth is limited. [Because] Russian OEMs are the driving force behind this market segment, certain lower quality lubricants still prevail. LLK International, the countrys biggest lubricants manufacturer, is Russian oil major Lukoils lubricants arm.

Russian lube blenders need to compete with imported branded products, especially premium quality lubes due to the increased demand from buyers of imported vehicles. Furthermore, freight movements into Russia from Europe and Asia will increase, while [the countrys] lubricants requirements for new hardware are poised to meet Euro V emissions and Euro IV fuel standards in 2013 and 2014, Corradi contended.

Upbeat Outlook for India

India is Asias third-largest economy but economic growth in 2011 did not meet expectations. The key question now is when and how fast will India start to bring interest rates down to further stimulate the economy, Corradi said.

In 2011 Indias vehicle sales amounted to 17.9 million units, an increase of 27 percent compared to the year before. Two-wheel vehicles dominate production, with penetration of high-end brands such as Triumph and Harley Davidson. But the high interest rates and rising import costs will [flatten] car sales for fiscal 2011-2012, he said.

Regardless of that, Indias young population, rising salaries and low vehicle penetration make it a key market for global car makers. India is set to be the worlds third-largest car market by the end of the decade, Corradi said.

As the market grows and becomes mature and diverse with more high-quality passenger cars available, Indias emerging economy is expected to hunger for premium quality lubricants. The countrys lube quality upgrade is expected to speed up, as high quality base stocks are becoming more widely available and Euro IV emissions regulations are expected to cover the entire country by 2016, Corradi said, adding that this will provide huge opportunities for lubricant marketers. Group I base oil demand is declining, while all three state oil companies have Group II base oil plants. India imports additional Group II and Group III base oils from South Korea and other destinations.

Heavy-duty oils account for 46 percent of Indias 1.8 million tons per year of lubricant demand, while motorcycle oils and passenger car oils account for only 11 percent and 10 percent, respectively. Infineum found that lubricant quality levels remain low, with 40 percent of the passenger car motor oils in the API-SG/CD category and more than 50 percent of heavy-duty oils in the CF-4 category.

Indias high petrol prices are driving demand for alternative fuels such as diesel, liquefied petrol gas and electric vehicles. The government actively supports alternative energy use, with a target of 20 percent biofuels by 2017. It also subsidizes production of electric vehicles, Corradi said.