In a presentation at the ICIS Base Oils and Lubricants Conference in Johannesburg, South Africa, Valentina Serra-Holm, marketing director for Nynas, said that Africas outlook shows substantial differences even within subregions. She noted that Central Africas growth accelerated in 2014 to 5.6 percent from 4.1 percent in 2013, with the mining sector and related investment remaining the main engines of growth in the region.

East Africas growth accelerated to more than 7 percent in 2014, from below 5 percent in 2013. However, she noted that it is projected to fall to 5.6 percent in 2015 and rise again to 6.7 percent in 2016 when East Africa will again become the continents fastest growing region.

For North Africa, Serra-Holm said that growth remains uneven as fallout from the uprisings of 2011 is still affecting countries in the region. She noted that despite the outbreak of Ebola in West Africa, it achieved a relatively high GDP growth of 6 percent in 2014, with the regions economy projected to moderate in 2015 and to strengthen again in 2016, driven mainly by Nigeria

Serra-Holm said that Southern Africas growth slowed to below 3 percent in 2014, and only a moderate recovery is projected for 2015 and 2016. She explained that the subdued performance is due to relatively poor growth in South Africa.

Africas Lubes Market

According to Serra-Holm, the African lubricant market accounts for less than 10 percent of global finished lubricant demand, with over 90 percent of the demand concentrated in eight countries – South Africa, Egypt, Algeria, Nigeria, Morocco, Libya, Tunisia and Sudan. The geographic concentration of the demand is mirrored in the location of the blending capacity, with South Africa dominating the scene with at least nine blending plants, she said.

Algeria, Egypt, Libya, Morocco, Nigeria and Tunisia also have substantial blending capacity. However, Serra-Holm said that the movement of goods within the continent remains a challenge that will encourage the import of finished lubricants. For instance, East Africa will see a flow of finished lubricants from the United Arab Emirates while North Africa is primarily targeted by the Mediterranean countries.

Serra-Holm noted that automotive lubricants remain dominant in Africa while industrial lubricants account for less than 30 percent of the continents total market. Due to the low level of industrialization and the relatively small manufacturing sector, the market is dominated by the automotive segment, with commercial lubricants being about twice as big as consumer lubricants, she said.

Industrial lubricants are driven primarily by the petroleum, mining, and agriculture sectors, with hydraulic fluids being the largest product category, followed by general industrial oils. However, she forecast increased growth of agricultural lubricants, stemming from increased mechanization.

In addition, investments in power generation are expected to drive lubricant growth in Africa. This development, she noted, will lead to increased demand for electrical oils. Investments in car manufacturing in Nigeria are another positive driver for lubricant demand on the continent.

Price a Key Differentiator

Serra-Holm reported that price remains a differentiator in Africas lubricant market, explaining the dominance of low-quality oil. This is evident in the car park, which consists of a very old fleet with older engine technologies both in commercial and passenger vehicles

The emission control norms and fuel efficiency standards in Africa, save for South Africa, are less stringent than in Europe or North America, said Serra-Holm. The heavy-duty market is dominated by monograde oils, supported by the perception that thicker oils perform better in hot and dusty conditions. In passenger-car oils, the use of high-quality lubricants is limited to imported cars, with the market predominantly following obsolete specifications.

Serra-Holm noted that based on pure demand considerations, the penetration of high-performance lubricants is not expected to see any major growth in the near term. Consequently, the primary base stock on the African continent is API Group I, which is heavily reliant on imports.

Since the lubricant market has lower quality standards and is very price-driven, Group I oils still dominate the local scene, both in automotive and industrial formulations, said Serra-Holm. She added that the penetration of Group II remains extremely limited except in South Africa, where Group II is used automotive lubricants.

Serra-Holm explained that since Africas Group I market relies on imports, the outlook for global Group I capacity is of key importance. On the other hand, she said that there is no longer a steep price differential between Group I and II. Possibly, a year from now, Group I and II will be at the same price, and maybe there will be a time when Group I will be more expensive than Group II.

Group II Pressure Mounts

Declining global Group I capacity puts pressure on the African lubricant market, said Serra-Holm. Significantly, she noted, there have been no recent investments in Group I refineries while Group II capacities are on the upswing.

She added that the wave of new Group II and III capacity will put further pressure on Group I producers. Over 12 million tons of new Group II and III capacity will create a strain on the global market, as demand growth is not expected to accommodate the increased supply, said Serra-Holm

She said the lubricant market in Africa will be further complicated by the ongoing rationalization of Group I, which is going to accelerate. A wave of rationalization is coming through in 2015, with five Group I plants in Europe stopping production, which will lead to the disappearance of almost 1.5 million tons per year
of Group I – over 25 percent of the regions capacity.

According to several analysts, several Group I refineries are at risk of closure in the next five years – a total of 10-15 million t/y. The pace of rationalization will certainly increase in the near term, with Europe and Asia being in the front line, Serra-Holm said.

Group I rationalization is already impacting the Group I market in Africa. In particular, bright stocks are extremely short, being in huge demand and very difficult to source, said Serra-Holm. Solvent neutral 500 is still in balance, supported by some large imports from Russia, but it is showing signs of getting short. The closure of the Pernis and Rotterdam refineries at the end of the year will most likely worsen the situation for both heavy neutrals and bright stock.

Group I Replacements?

Serra-Holm noted that naphthenics are likely to increase their penetration in process oil applications and selected industrial applications, such as greases and metalworking fluids. On the other hand, she said the Group I shortage will likely accelerate conversion to Group II in passenger car oil – a purely supply-driven move, taking advantage of off-the-shelf packages requiring no product development work. However, she added, the main challenge will be in applications where reformulation is problematic.

Formulations requiring solvency or viscosity conversion from Group I to II oils may be challenging. But in applications where reformulation is not an option, the conversion to blends of Group II and naphthenic oils can represent a viable solution, said Serra-Holm. Blends of naphthenic and Group II or III oils have similar characteristics to Group I oils, and conversion will require minimum or no reformulation.

She added that these blends have equivalent solvency but better response to oxidation inhibitors than Group I oils. I think there is a market for a blend of Group II and naphthenics because we already see increasing demand for blends in Europe, she told LubesnGreases in an interview.

Will Africa Adapt?

One of the big questions nagging Africas lubricant market is whether the continent will adapt to higher grade oils. Serra-Holm feels that Africa will be forced to move away from Group I. The reluctance to reformulate will be challenged by the increasing difficulty to access to Group I capacity, she said, noting that the first country likely to move away from Group I will be South Africa, which is the most quality-driven country in the region. However, other countries will still try to hold on to Group I, especially in heavy-duty oils.

Subhasis Bhattacharya, base oil technology manager for Chevron Lummus Global, told LubesnGreases in an interview that economic growth in Africa will bring about its adaptation to premium base oils. As GDP grows and development increases in Africa, there will be demand for premium base oils due to environmental regulations. All this goes hand-in-hand with the move to cleaner fuels, which require premium lubricants.

Geeta Agashe of Geeta Agashe Associates LLC said she would not speculate about when Africa will eventually transition from Group I. She cited India as an example of such a shift, which occurred in less than five years. India used to be a monograde market, and then it shifted to the SAE 20W-50 viscosity grade, and in less than five years it moved to SAE 5W-30.

Africa could take less than five years, she said, depending on how motivated everybody in the value chain is to move forward. Or it could be 15 years. It really depends on the OEMs, adding that automakers are pushing toward lighter viscosity grades, and that will compel local blenders to make the move, at least for new cars.

Subhasis contended that the shift from API Group I is actually coming from the finished lubricant blenders. They want to switch to premium base oil because the amount of additive needed is lower, and the oils are significantly more stable.

He emphasized that the shift to premium base oils on the continent holds several advantages for both blenders and refiners. We see advantages for makers of finished lubricants – because of the higher performance – and refiners – because they can produce these oils more efficiently, reducing their operating costs.

Agashe concluded that technical education will be vital for the shift to premium base oils in Africa. I feel it is a combined job for the industry, including additive suppliers, lubricant marketers, base oil marketers as well as the relevant government agencies.