In the lubricants market, aside from the obvious sectors like automotive, Pakistan has a large and diverse energy sector with a strong demand for lubricants in the power generating sector.

Base Oil Supply Constraints

According to the LBSP, Pakistan is home to five refineries, but only one – state-owned National Refinery Ltd. – produces lubricant base oil. It has a capacity to produce up to 200,000 metric tons of high and medium viscosity index base oils and meets the entire national demand for API Group I base oils.

National Refinery produces 10 base oils: seven HVI, which account for 70 percent of production, and three MVI grades. Pakistan has become a textile supply hub for multinational companies; therefore, National Refinery has a high output of spindle oils. Also, the plant continues to produce MVI grades due to cost and demand. Supplies from the company are also supplemented by imports for higher grades.

When National Refinery has a surplus a Group I supply, it is exported chiefly to China, India, Malaysia and the Middle East. In 2011-2012, LBSP estimates that the company exported nearly 37,500 metric tons of 65 Solvent Neutral, 100 Solvent Neutral, and bright stock. The risk of relying on a single domestic base oil supplier was highlighted by the recent shutdown of National Refinery, which forced oil companies to import Group I supplies.

NRL gave advance notice for a planned shutdown in November 2012, and most major oil companies imported base oil to meet their demand. Nevertheless, the shutdown highlighted the risk of a single supply source.

Just like neighboring India, Pakistan suffers or gains, depending on ones perspective, from a large recycled or reclaimed base oil market. The LBSP estimates that Pakistan has 21 legally sanctioned recycling plants with a total capacity of 70,000 metric tons. Most operate at less than full capacity, with the majority of plants located in the Punjab region. In contrast, few recycling plants in India are legally incorporated because owners seek to evade the requisite tax regulations. Low quality and technically inferior products are the common denominators in both markets.

Counterfeiting Still an Issue

With the preponderance of recycled base oil in Pakistan, it is clear most used oil is sold to illegal plants. There is little regulatory oversight and primitive methods are frequently used in the production process.

Similar to India, many of the illegal unlicensed plants are also involved in the flourishing counterfeit lubricant market. According to LBSP, Shell, Caltex and Total are the main brands affected. That presents a real challenge for international lubricant companies, and analysts say it is incumbent on these companies to constantly educate consumers about the benefits of higher quality lubricants because regulation cannot totally eradicate the problem. Smuggling of lubricants into Pakistan is also prevalent, although the quantities are small said LBSP.

Pakistan imports Group II and Group III, and LBSPs Rizvi said he anticipates that imports will increase further as market dynamics change. Multinational lubricant companies are the principal force driving the market to higher API specification products. Group II base oils are also used for blending higher API products including API SL/CH-4 and above. According to Rizvi, multinational oil companies are pushing API SN and CI-4 products made from Group II/III base oils and which NRL cannot supply.

Lubricants Market

LBSP puts the total lubricant market in Pakistan at around 319,000 tons, but, according to Sheikh Muhammad Shahid Haque of LBSP, there has been no update of market estimates since a major study in 2011.

Of the total market, multinational oil companies have the largest share at 103,000 tons. State Oil has a 33,000 ton share, and companies such as Castrol, ExxonMobil and others 45,000 tons. Haque describes this 181,000 tons the accessible market. Miscellaneous and imported brands comprise 55,000 tons, reclaimed or recycled lubricants 70,000 tons and smuggled lubricants 13,000 tons.

Pakistans lubricants market is multifaceted, and major segments include passenger car motor oil and motorcycle oils, heavy-duty engine oils, industrial power generating, marine and general industrial. The latter serves a diverse sector, including food and beverage, mining, construction, cement, textile, oil and gas and petrochemical/fertilizers.

The motorcycle market is witnessing dramatic growth as a result of demand from a large segment of the population earning low income per-capita. And new OEMs are expected to enter the market to take advantage of growth opportunities.

It is noteworthy that the market share of multinational oil companies was largely static in the five years prior to the survey, whereas companies including ExxonMobil and Castrol saw their share rise steadily. Heavy-duty engine oil is the biggest segment supplied by lubricant companies with about 42 percent of consumption followed by passenger-car/motorcycle oils at 28 percent and the burgeoning industrial lubricants sector at 22 percent.

With a demand of 134,000 t/y, the heavy duty market has diverse standards skewed by a large agricultural sector. By consumption, API CC accounts for 29 percent of the market, CF/CF-4 17 percent, CH-4 17 percent, CD/SF 13 percent and CI-4 6 percent. However, the sector is rapidly trending toward CH-4/CI-4.

Straight base oils and other unclassified lubricants comprise 16 percent of the market. The commercial road transport market and agricultural market dominate heavy duty demand. The commercial transport sector has approximately 550,000 vehicles, according to LBSP. Japans Hino has 38 percent share, Master 31 percent and Nissan and Isuzu 10 percent each; PAW, Daewoo and others split the remaining 11 percent. However, overall, truck production is in decline.

Pakistans strong agricultural heritage is reflected in a diverse sector of 1.15 million units, and tractors make up the largest segment of the market. Local OEM Millat, which originally imported Massey Fergusson tractors in semiknock down form, has an estimated 56 percent market share. Its main domestic competitor is Al Ghazi, which manufactures Fiat New Holland tractors, and has a 37 percent share.

The heavy-duty diesel engine oil market is under pressure and has witnessed a slowdown in the last few years, said LBSP, mainly due to a contraction in the construction market and poor economic performance. Persistent heavy floods have also depressed tractor demand. Conversely, acute power and gas shortages have increased demand for lubricants in the energy sector.

At around 90,000 t/y, the passenger car and motorcycle market is experiencing solid growth. The market is starting to shift to the higher API grades SM/SN, and several OEMs are pushing genuine oils in the API SM category. About 40 percent of the market has shifted to API SL or higher, said Haque.

In a market of three million vehicles and 8 million motorcycles, Suzuki and Toyota account for 80 percent of motor vehicles sold. Local OEMs supply around 50 percent of the motorcycle market, with Honda supplying roughly 43 percent and nominal shares being held by Yamaha and Suzuki, according to the Pakistan Automotive Manufacturers Association and LBSP.

Energy Market Buoys Demand

Pakistans rampant power shortages have boosted demand for lubricants, and the sector is expected to boost lubricants sales. Additionally, the lower cost of natural gas is also propelling the market. The gas engine oil market is around 7,400 t/y, LBSP says. Waukesha has around 36 percent share, followed by Caterpillar (34 percent) and Jenbacher (20 percent).

The gas turbine market accounts for 2,540 t/y. Overall, around 4,000 gas engines are installed nationwide with a power generating capacity of 3,000 MegaWatts. They are commonly used in textile mills, gas fields, manufacturing and the food industry. LBSP thinks the market for low ash engine oils will grow further but says that OEMs are rapidly developing genuine oils.

Small gensets consume heavy-duty oils, and number around 53,000 nationwide. Sixty-five percent of the market is CH-4 15W/40 and led by Chevron, Shell, Total and ExxonMobil/Caterpillar. The main OEMs are Cummins (35 percent), Caterpillar (26 percent) and Perkins (20 percent). LBSP says the market is gradually gravitating toward CI-4 due to a growing requirement from the telecom sector and growing user awareness of the benefits of longer drain intervals.

Hydraulic fluids are also used in power applications for the marine lubricants market, which LBSP
estimates at 14,000 t/y. Approximately 12,630 tons are consumed by captive and independent power producers (IPPs) and the remainder is used in marine bunkering applications.

The marine segment underwent a sharp decline recently due to a decrease in the number of incoming ships at port. IPPs have a capacity of around 7,000 MW with OEMs Wartsila (55 percent) and MAN (25 percent) holding the major market share.

Lubricant demand in the energy sector will continue to grow due to growing power demand, according to LBSP, which forecasts the sector to grow to 39,000 MW by 2025.

Future Certain or Uncertain?

Petromin, ENOC, Sinopec, Petronas and Gulf Petrochem have entered the market. So, if the number of international suppliers is any indication, the lubricants sector may be a solid opportunity. LBSP says future trends indicate finished lubricant imports will increase, particularly lubricants made from Group II/III base stocks.

Smaller companies import primarily from the United Arab Emirates, which has carved out a niche as
a lubricants re-export hub. However, higher API products are imported from Europe, the United States
and Asia Pacific. Multinational lubricant companies import specialty products from their own plants
based in U.A.E., Singapore and Europe.

Changes in market dynamics and the use of higher specification lubricants in Pakistan will be influenced by a number of factors. Notably, fuel economy and maintenance intervals will be major determinants as will performance. There is also growing awareness of environmental considerations particularly with respect to emissions.