Key Indicators

Important macroeconomic indicators relative to the lubricants industry are GDP, car and steel production and, in some sectors, chemical production. Globally, all of these indicators grew between 3 and 4 percent in 2013.

Since the beginning of this century, GDP development and lube demand can be divided into two time frames. In the eight years from 2000 to 2007, average GDP growth was 5 percent per year, and lube demand was relatively steady at 36 million metric tons. In the six years from 2009 to 2013, average GDP growth was 3 percent per year while lube demand averaged 35 million tons.

It is interesting to note that year-on-year lubricant demand growth tracks year-on-year GDP growth but with wide swings. Generally, GDP is a poor predictor for year-over-year performance, but it is a good long-term indicator.

Global lubricant market volume was about 36 million tons in 2000 and was more or less stable until 2008. Then, worldwide demand plunged by more than 10 percent to about 32 million tons in 2009. However, some regions, especially Europe, were hit much harder. Since 2010, lubricant demand has enjoyed a partial recovery to about 35 million tons, but it is not quite back to the peak years of 2006 and 2007.

With a difference of less than 1 million tons in lube consumption between 2000 and 2013, one might think that not much happened over those 13 years. In fact, when examining regional market dynamics, it becomes apparent that a great deal happened.

For example, the Asia-Pacific region, together with countries outside Western Europe and North America, accounted for little more than one-third of global volume in 2000. It now accounts for more than one-half of the volume due to growing industrialization and motorization and, consequently, higher consumption.

The mature markets of Western Europe and North America experienced a continuous move to higher quality lubricants, which resulted in extended oil change intervals, consequently, lower annual demand. In other words, Europe and the Americas lost in relative terms what Asia-Pacific and the rest of the world gained in lube consumption. It is also amazing to note that Asia-Pacific, with 42 percent of global demand, today consumes more than twice the lubricants per year than all of North Americas 19 percent.

2013 Lubricant Demand

In 2013, the lubricant volume increase was 0.9 percent in both Africa and Eastern Europe. In the emerging markets of Latin America, Middle East and Asia-Pacific, demand increased between 1 and 2 percent. All countries in Latin America showed growth, driven mainly by commodity exports to Asia as well as domestic consumption.

In the Middle East, the U.A.E. at 3 percent and Saudi Arabia at 4 percent led lubricant demand growth. Asia-Pacific is a mix of emerging and mature markets. Lubricant demand grew by 3.8 percent in China but declined by 2 percent in India due to a 10 percent drop in car sales. Expectations are that demand will grow in China and India but at much lower rates than previously. In mature Asian markets, demand dropped by 3.1 percent in Japan and 1.8 percent in South Korea.

While demand in Western Europe increased by 0.5 percent, the mature market of North America remained at its 2012 level. North American demand is being impacted by increased use of synthetics, fewer miles driven and longer drain intervals. Even at that, North Americas per-capita lube consumption is still twice that in Western Europe, at more than 18 kilograms per year vs. 9 kg/y.

The 5 kg/y consumed by the rest of the world is only one-half of Europes per-capita demand in 2013, although five regions registered above-average consumption. This is because per-capita demand in Asia-Pacific and Africa, which represents nearly one-half of the global market, is still less than 5 kg/y.

The ranking of the top 20 lubricant countries, which make up close to 75 percent of worldwide lube consumption in terms of volume, is headed by China and the United States, which together account for one-third of demand. The U.S., the second largest single market, has the highest per-capita consumption while China, the largest market, has the second lowest per-capita consumption at 5 kg/y among the top 20 lubricant-consuming nations.

These figures show the growth potential of a country like China, although it will likely never reach U.S. per-capita demand because quantity and quality growth work against each other. Instead, China is an emerging market that is starting to transition to a mature market, and a more probable estimate is that
it will reach Europes per-capita usage. Chinas total market will someday reach nearly 12 million tons, while Europe has no potential for volume growth.

In Europe, growth will be in quality, notquantity, because the region, especially Germany, is a technology driver. Five European countries, including Germany, are in the top 20 lubricant-consuming nations. The others are Russia, United Kingdom, France and Italy. Together, these countries make up only slightly more than 10 percent of global lube market volume.

Deep Dive in Europe

The overall share of Europe in the global lubricants market declined from 27 to 20 percent between 2000 and 2013; however, the split between Western and Eastern Europe remained the same. Western Europe represents slightly more than 50 percent and Eastern Europe slightly less than 50 percent of European consumption.

The top five countries in Western and Eastern Europe account for 70 to 80 percent of their respective regional demand. Russia, in the east, and Germany, in the west, together account for one-third of total European volume because of their large vehicle populations and strong manufacturing base.

Average lubricant demand in the five major Central and Eastern European countries declined by 15 percent between 2007 and 2013. Poland, the Czech Republic and Ukraine showed above average performance, while Russia and Hungary were below average.

Russia was hardest hit by the crisis in Eastern Europe, as oil prices plummeted and foreign credit dried up. Hungary faced many problems, including inability to service short-term debt, declining exports, low consumption and collapse in investor confidence.

Russia showed a strong correlation of key performance indicators to lube consumption. The proportional loss of lube demand from 2007 to 2013 was 20 percent. Car production was down by 50 percent in 2009 and now is 50 percent higher than in 2007. In 2009, the car industry produced only one-third the number of light vehicles than in 2008 due to the financial crisis. Then, the Russian government introduced protectionist measures, worth U.S. $5 billion, to improve the situation – U.S. $2 billion in bailouts for troubled companies and U.S. $3 billion in credits for buyers of Russian cars. Tariffs for imported foreign cars and trucks also were increased.

The most effective measure taken by the Russian government was a car scrapping scheme, adopted in March 2010. Owners of cars older than 10 years received a subsidy of 50,000 rubles (about 1,200) if they purchased a new car produced in Russia. As a result, sales of Russias largest carmaker, AvtoVaz, doubled in the second quarter of 2010, and the company returned to profitability.

The strongest correlation of Russian lube demand is with steel production, which increased by 2.8 percent year-to-date in 2014 vs. 2013 while lube demand was estimated to increase by around 1.5 percent for the full year 2014.

Poland has a well-developed industrial base. While its GDP growth was slowed by the economic crisis, it managed to maintain positive growth, which was not true of other major Central and Eastern European countries. Poland was the only EU economy to escape the 2009 recession because its chemical sector remained strong.

Polands lube demand dropped only 1 percent in 2013 compared to 2007. Generally, lube demand tracked steel production until 2011. Then, the steel market contracted because rapid development in previous years led to substantial oversupply, increasing production costs and triggering market consolidation. Since 2009, Polish lube demand correlated with GDP, which the IMF predicted to grow by 3.2 percent in 2014. Lube demand, therefore, is estimated to increase by about 3.5 percent in 2014.

The Czech Republic remains one of the most stable and prosperous countries of the post-communist states. Czech lube demand in 2013 was down 10 percent vs. 2007. Interestingly, car production increased steadily over this time frame, and its importance is growing in the country, following the opening of new production plants. Lube demand weakly follows steel production. Until August 2014, Czech steel production was up 3.2 percent year-over-year, and lube demand is estimated to be up by about 1 percent for the full year.

Ukraines economy contracted by 15 percent in 2009, one of the worst economic performances in the world. But the economy rebounded in 2010, and growth resumed, driven by exports. The countrys lube consumption dropped by 15 percent in 2013 compared to 2007, and all the countrys economic indicators were down in 2013, especially car production, which fell by 87 percent vs. 2007. Ukraine shows a strong correlation between GDP and steel production. Steel is among the countrys major industries, and production had fallen by 11.4 percent in August 2014 vs. 2013. GDP is predicted to drop by 6.5 percent in 2014, and lube demand is estimated to fall 9 percent for the year.

Hungarys lube demand declined by 20 percent in 2013 vs. 2007. All indicators except chemical production were down, especially steel. The main growth driver is the automotive sector with new capacities being added by Mercedes, Audi, GM Opel and component industries. The change in lube demand lies between GDP growth and car production. In September 2014, year-to-date car production was up 2.1 percent, GDP increase in 2014 is forecast at 2.8 percent, and lube demand is estimated to increase by 2 percent for the year.

On average, lube volumes in the top five West European nations dropped by about 25 percent between 2007 and 2009 with a slight recovery in 2011. However, in 2013, these countries were still about 20 percent below pre-crisis volumes of 2007.

Germany is the only Western European country that showed above-average performance in this period. Lube consumption in 2013 was down only 5 percent vs. 2007 compared to the average Western European decline of 20 percent.

France tracked the average decline of 20 percent while U.K. lube demand was down nearly 25 percent in 2013 vs. 2007. All 2013 indicators in the U.K. are below 2007 levels, but GDP and car production are nearly back to 2007 levels.

Italys lube consumption was down 25 percent in 2013 vs. 2007. All 2013 indicators are below those of 2007, but GDP and chemical production show the lowest decline.

Spain was hit hardest, with lube consumption in 2013 down by more than 30 percent compared to 2007. All 2013 indicators are below 2007 except for chemical production, which is at the 2007 level, mainly due to strong exports. Spanish lube demand (up 3.6 percent by June 2014) correlates with steel production (up 2.1 percent by August 2014). The estimate is that Spains full year lube demand will be up by some 3 percent.

Future Outlook

In April 2014, the IMF projected global growth of about 3.7 percent, rising to 3.9 percent in 2015. In October, IMF revised its growth forecast down to 3.3 percent due to weaker than expected global activity in the first half of the year.

Thus, macroeconomics will continue to influence global lubricant market development with a correlation between demand and key economic indicators. In the final analysis, Fuchs estimates that global lube demand growth in 2014 will be somewhere below 1 percent. In addition, European lubricant market development will depend on a resolution to the Ukraine crisis, the economic situation in Asia and the cost of energy.

Eastern European companies can grow by focusing on the high-quality end of the market and looking for growth opportunities outside the region. Western European demand will continue to decline, due to declining population, industrial production moving East and the continuous move to higher quality lubricants.

Apu Gosalia is Head of Global Competitive Intelligence and Chief Sustainability Officer for Fuchs Petrolub SE, Mannheim, Germany. He can be contacted at apu.gosalia@fuchs-oil.de.