Metalworking fluid consumption in Europe posted an increase of 1.5 percent in 2013 over 2012. The presence of a substantial automotive industry drives metalworking fluid consumption in Europes top markets, which include Russia, Germany, France, Italy and the United Kingdom. These five markets account for about 72 percent of demand in the region. Additionally, Russia is one of the leading steel and aluminum producers in the world, Germany has a sizable share of the European metals production, and the United Kingdom possesses vibrant aerospace and ship building industries – all of which contribute to the demand for metalworking fluids.

Removal fluids, the largest category representing 56 percent of the total volume and value, along with protecting fluids, show the strongest growth in Europe. Forming fluids show moderate growth, and treating fluids have declined slightly due to fire-safety triggered insurance costs favoring a switch from neat oils to synthetic treating fluids. This switch in turn will eventually reduce the overall consumption of treating fluids.

Additive Demand

Global additive consumption for metalworking fluids accounts for about 575,000 tons. The leading additive categories include corrosion inhibitors, emulsifiers, friction modifiers and extreme pressure agents. Together, these four categories account for more than 80 percent of metalworking fluid additive demand.

Additive changes are driven primarily by health, safety and environmental considerations. For example, the use of low molecular weight chlorinated paraffin is restricted or banned outright. These additives have been replaced by mid- and long-chain molecules. However, the replacements are not as effective in providing extreme pressure protection; hence, they require higher addition rates.

Phosphorus and sulfur compounds are also being used as substitutes, but they bring their own problems. Phosphorus promotes bioactivity while sulfur has an unpleasant odor.

Besides chlorinated paraffins, the use of metals in general is being restricted. There is also a reduction in the use of secondary amines and formaldehyde releasing biocides. These health, safety and environmental factors have all been in play for 10 to 15 years. However, while the restrictions are not new, the displacement of undesirable molecules globally has been rather slow.

Product development practices in Europe in particular are mainly focused on developing new technology out of necessity because of Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) and other regulations. Most new product launches in Europe recently are based on:

• Boron-, chlorine- and amine-free technology
• Cyclic amine technology
• Hazard label-free technology
• Emulsification of API Group II and III and gas-to-liquid base oils
• Fluids with a lower potential to stain
• Vegetable ester-based materials

All European companies must follow the EUs REACH legislation, which applies to the ingredients used in metalworking fluid production. However, REACH is more problematic for water-miscible fluids than for neat oil, due to the higher number of ingredients in their formulations.

REACH also affects metalworking fluid consumers because they have to provide detailed documentation on metalworking fluid related issues. Other regulations that affect metalworking fluid suppliers and are followed in all EU countries include the biocide directive and adaptations to technical progress. ATPs are amendments made to the classification, labelling and packaging regulation to ensure it remains as comprehensive and accurate as possible.

Because of these regulations, the European industry has increased its demand for green products, particularly formulations that are free of chlorine, boron and formaldehyde release agents.

Suppliers

In Europe, the sales of branded metalworking fluids are dominated by four companies – Houghton, BP Castrol, Fuchs and Quaker. After the acquisition of Shells metalworking business in 2012, Houghton became the market leader in Europe. Yet, taken together, these four companies account for only a little over 40 percent of the total European supply.

This fragmented supply structure is to be expected given that the metalworking fluids industry comprises a wide range of products, reflecting the variety in machining conditions, materials involved, operating conditions, performance requirements and other factors. The lack of standard products means the industry has no significant economy of scale; hence the supply base is fragmented.

Outlook

Besides recovery from the recession and continued growth in many European countries in the automotive, machinery and primary metals sectors, key events that will drive increased industrial output are infrastructure projects in Russia, Poland, Romania, Bulgaria and Turkey. An additional factor is the housing construction sector in the United Kingdom, which has seen positive growth since the second half of 2013. An average annual growth rate of 1.6 percent is estimated for the period between 2012 and 2017.

Based on an ongoing survey of end users and suppliers, Kline projects moderate growth in the metalworking fluid industry, with global consumption reaching about 2.4 million tons by 2022. While on the surface the industry appears to be mature, a number of interesting trends are in play.

Base Fluid Changes: Due to availability issues, the use of API Group I is declining, and the use of hydrocracked base stocks is increasing. This change has advantages and disadvantages. Group II/III base stocks and vegetable oils are penetrating some formulations.

Straight Oil Growth: Water-miscible fluids are preferred because of their lower usage cost, and increasing dilution rates offers opportunities to reduce costs. However, there are significant drawbacks. Neat oils are easier to maintain, have a longer tank life and are easier to recycle. In contrast, water-miscible fluids can be expensive to use when the cost of effluent testing and treatment is factored in.

Manufacturing Trends: The outsourcing trend of developed countries is winding down and may reverse altogether because the recession has created a change in the mind-sets of richer countries. There is an increased desire to protect the manufacturing sector to retain valuable skills and to create jobs.

Additionally, higher logistics costs, shipping complexity, threat of intellectual property theft, rising labor costs, lower productivity and (in China) an appreciating currency make the outsourcing of production less and less appealing. The reversal of outsourced manufacturing will have two effects.

First, manufacturing activity in developed countries will stabilize or grow with a corresponding impact on metalworking fluid consumption. Second, low-cost Asian manufacturers will seek to move up the value chain by globalizing their operations to continue growing. This will compel them to modernize their manufacturing processes and pay greater attention to health, safety and environment factors. In turn, this will create an opportunity to market higher quality metalworking fluid products, even in low-quality markets.