Indeed, N.C. Sekharan, vice president direct sales, Raj Petro Specialties Pvt. Ltd., noted, The long-term prospects for recovery in the Indian economy appear to be robust. In a presentation at the ICIS Middle Eastern Base Oils and Lubricants Conference in Dubai in October, he explained that the automotive lubricants sector will grow as consumers move to oils with higher performance levels and lower viscosity grades, which will also require higher quality base oils and new additive technology.

Market Overview

India is the third largest lubricants market in the world after the United States and China; therefore, its improved economic prospects could provide a boost for global base oil and lubricants producers. However, Ghosal said, Indias automotive lubricants market is largely price sensitive, and it is also highly fragmented with over 22 large and small manufacturers. With the spate of mergers and acquisitions in recent years, only a handful of big companies enjoy any significant market share.

To compete effectively, companies are adopting a more customer-oriented approach, said Ghosal, where they focus on creating brand awareness through print and electronic media, promotional campaigns and trade shows. In the long run, the overall outlook for the automotive lubricants market is expected to be positive due to the growing Indian economy along with the increased purchasing power of consumers, he added.

Ghosal traced the beginning of Indias economic growth to 1991. The first phase lasted from 1991 to 2005 and witnessed the emergence of the Indian middle class, an explosion in the service sector and a quantum shift in personal consumption. However, the growth was largely limited to the 300 million Indians living in cities.

The second phase, he continued, running from 2005 to the present, has seen a significant increase in incomes for the 700 million Indians living in small towns and villages. It was the start of an era of inclusive growth in India, accompanied by a strategic shift in the governments development agenda he said.

India is home to four major base oil refiners: Hindustan Petroleum Corp. Ltd., Indian Oil Corp. Ltd. Chennai Petroleum Corp. Ltd. and Bharat Petroleum Corp. Ltd. They have a total production volume of 600,000 tons per year of API Group I base oils and 530,000 t/y of Group II base oils.

Almost 70 percent of base stock demand is met by imports, said Raj Petros Sekharan. Also, due to the increased number of newer vehicles in the population, demand for Group I is declining for crankcase oils while demand for Group III based passenger car and motorcycle oils is rising.

The Indian automotive lubricants market consumes a wide variety of base oils, Ghosal said. Group I oils are used in mid- and bottom-tier automotive products, industrial oils, metalworking fluids, process oils and greases. Group II is used in mid- and top-tier engine oils, automatic transmission fluids, process oils and selected industrial oils like turbine oils hydraulic fluids.

Group III base stocks find application in top-tier passenger car and heavy-duty engine oils, as well as four-stroke motorcycle oils, according to Ghosal. Group IV (primarily polyalphaolefin) base stocks are used in light-duty fuel-efficient engine oils, long-life/fill-for-life automotive gear oils and other transmission fluids and high-performance industrial applications like gear oils, gas turbine oils and food grade lubes.

Synthetic esters are applied as solubility components with Group IV base oils in metalworking fluids, fire-resistant hydraulic fluids, aviation lubricants, compressor and refrigeration oils and biodegradable lubricants. Finally, polyalkylene glycol is used for fire-resistant hydraulic fluids, compressor and refrigeration oils, gear oils, chain oils and metalworking fluids.

Engine Oils

Sekharan said that heavy-duty engine oil is the largest automotive lubricant product category, despite the fact that 75 percent of the vehicle parc is two-wheelers. In 2012, India was the fourth largest commercial vehicle market globally with 5 million vehicles on the road.

Tide Waters Ghosal added that the heavy-duty market is projected to become the second largest in 2015. Several trends are impacting the heavy-duty diesel engine oil market in India, including emissions regulations, increased competitiveness by lubricant and additive marketers, original equipment manufacturer specifications and consumer awareness.

To reduce emissions, the government has required Euro IV fuel with 50 parts per million sulfur in 13 cities since April 2010. Euro III (350 ppm sulfur) was introduced in the rest of the country between April and October of that year. In addition, Sekharan said that a planning commission was formed in December 2012 to finalize the roadmap to Euro V and VI (10 ppm sulfur).

The question is whether this will lead to uniform emission norms across the country. Refineries require a U.S. $12 billion investment to reduce fuel sulfur, he noted. Will there be a Euro IV+ in the interim with 25 ppm sulfur fuel?

Ghosal pointed to increasing competitive pressure, development costs and margin pressures on lubricant and additive suppliers as significant factors in the heavy-duty market. Both are looking for ways to differentiate their products to increase market value. As a result, they are introducing higher viscosity index hydrocracked Group III and gas-to-liquid base stocks as well as additives with less impact on the environment, he said.

Related to this trend are efforts by OEMs to increase market share and profitability by introducing higher performance, longer life and more durable equipment at lower cost. All this while meeting environmental regulations and providing fuel economy and extended drain intervals.

Finally, Ghosal reported that consumers are increasingly looking for oils that provide meaningful and recognizable performance benefits and are cost effective. They are also demanding increased fluid durability and fill-for-life convenience.

Fuel economy legislation is the major driver in the passenger car segment, and the governments Bureau of Energy Efficiency announced a policy in January 2014 that is set to take effect on March 1, 2016. Details are still not very clear, Sekharan said, but noncompliance carries a hefty one-time fine of U.S. $16,700 with an additional levy of $1,670 per day.

The goal is 10 percent fuel economy improvement in 2016 and 15 percent in 2021 over the 2009 base year, he added. As a result of this and other factors, there is a swing toward lower viscosity grades in passenger car motor oil to 5W-XX and 10W-XX.

From Trucks to Mopeds

SAE 15W-40 is the most widely used heavy-duty viscosity grade, but demand is emerging for 10W-40, according to Sekharan. In addition, monograde gear oil demand is shrinking as new vehicles require multigrade oils.

Nearly 60 percent of the market for passenger car engine oils is at API SF/CC/CD levels. Some OEMs recommend API SG, Sekharan said, many being either genuine oils or OEM specific oils. Viscosities are generally 20W-40 and 15W-40, but newer generation engines use 5W-30.

He added that Indias diesel passenger car population is increasing rapidly due to fuel economy requirements, and they use 15W-40 oils. However, lower vehicle utilization and long drain intervals have offset growth in the passenger car lubricant market.

India is the worlds second-largest market for two-wheelers and is on track to move past China in the next 20 years, an official with Gulf Oil Lubricants India Ltd. told an industry conference in Mumbai in April. That means lots of growth potential for marketers of oils that lubricate motorcycles, scooters and mopeds, GOLIL Managing Director Ravi Chawla told the ICIS India Base Oils & Lubricants Conference. He added that demand is growing fastest in rural areas and for synthetic and semisynthetic scooter engine oils meeting the JASO MB specification.

Growth potential in India is particularly high in rural areas because two-wheeler penetration there is so low today, Chawla said. Forty-six percent of sales were in rural areas in 2013-2014, but that portion should increase to 62 percent by 2018-2019.

Finally, Tide Waters Ghosal, said that 20W-40 oils predominate in the tractor segment, but 15W-40 is recommended for new generation vehicles. API CF and CF-4 performance levels dominate.

Market Trends

Indias lubricant market is expected to grow significantly in the next 5 years, according to Raj Petros Sekhahran. Growth opportunities will be highest (about 74 percent) in the so-called bazaar segment, which accounts for around 40 percent of sales for automotive lubricants in India.

The growth rate for the commercial vehicle segment is forecast to increase at a CAGR of 11 to 14 percent, Sekhahran said, while the four-stroke two-wheel segment will continue to grow at a rate of 22 to 38 percent CAGR. Tractor sales have more than doubled since 2004-2005, and this segment is expected to continue to grow at 12 to 15 percent, he added.

The original equipment segment and retail trade are the two major marketing channels in the Indian automotive lubricants market. Sekhahran emphasized that partnerships with OEMs are becoming important because they help reinforce the value proposition of a particular brand. Typical marketing channels include authorized service stations, garages, agricultural equipment dealers and wholesale distributors.

India has seen a significant shift in customer preferences in lubricants, Sekhahran stated. Brand name, price, accessibility and service are becoming the deciding factors for choosing among brands.

Thus, the strategy in the Indian automotive segment has progressively shifted from commodity marketing to a brand pull, fast moving consumer goods product strategy. This is especially true in the bazaar trade.

With this change in strategy, Sekhahran feels that industry players are expected to increase advertising expenditures with a focus on developing brand image and improving brand equity. Higher dealer discounts, longer credit terms and higher inventory are becoming the norm. As a result, margins are declining due to increased promotional costs, discounts, incentives and money tied up in receivables.