German manufacturers continue to do well, but domestic demand for several categories of industrial lubricants are not keeping pace, an industry insider said. According to Stephan Baumgaertel, managing director of the German Lubricant Manufacturers Association (VSI), the countrys demand for some products will fall significantly in coming years – partly because of international economic trends and partly because of forces at home.

Market growth will happen elsewhere, Baumgaertel told a reporter last month, during an interview following his October address to the Annual Congress of the Union of the European Lubricants Industry in Berlin. I foresee cutthroat competition in the German market.

Germanys industrial base is well-recognized for being disproportionately large. In terms of population, it was the sixteenth largest country in the world in 2016, and it could fall to nineteenth in 2017. (Iran, the Democratic Republic of Congo and Turkey were slightly smaller in 2016, but their populations are growing between 1 and 3 percent annually, while Germanys is flat.)

But the German economy – measured by nominal gross domestic product – ranks fourth, largely because of its industrial base, Baumgaertel said. He noted that Germany has the third-highest value of industrial production – far behind China and the United States, but slightly ahead of Japan. Industry accounts for 22.6 percent of Germanys GDP, highest in the world and easily beating Japans second-place rate of 18.5 percent.

Several of Germanys core industries – automotive, mechanical engineering, metal production and metal products – consume significant amounts of lubricants. Partly because of their contribution, Germany is the seventh-largest lube market globally and the largest in the European Union, at roughly 1 million metric tons per year.

German manufactured goods sell well in markets around the world, but global economic activity is shifting to Asia-Pacific. That region accounted for one-fourth of worldwide GDP during the 1980s but is expected to contribute more than one-half during the 2040s. As the regions demand for automobiles and other products rises, manufacturers are building all kinds of production facilities there; with them will go demand for lubricants used in production processes – such as metalworking fluid and other industrial lubes – as well as engine oils and other lubes installed in new equipment.

Conceivably, German manufacturers could produce at home and export to Asia, a strategy that would boost domestic lube demand. But Baumgaertel cited several factors discouraging that course. Germanys labor force is shrinking and will decrease by 10 million people by 2050, according to the Economist Intelligence Unit, the second-largest decline forecast. Natural gas and electricity are relatively expensive in Germany – a disadvantage the countrys factories.

Building production facilities in other countries would prevent domestic lubricant demand from benefitting from overseas growth by German original equipment manufacturers. At the same time, Baumgaertel predicted, several other trends will cause domestic demand for several categories of lubricants to contract. Consumption of metalworking fluids by the nations automobile industry will fall 15 percent by 2025 due to environmental awareness; greater efficiency in lubricant use; rising popularity of dry-machining; and growing use of electric power trains.

The nations demand for hydraulic fluids will fall 17 percent by 2025 due to growing popularity of electric drives and a push to conserve resources. Grease demand for bearings and constant velocity joints will decrease 13 percent due to adoption of products allowing longer drain intervals.

Baumgaertel said German lubricant companies should be able to continue supplying German OEMs, even if they build and sell equipment overseas. One important thing is that German industry still sets standards around the world, like the United States and Japan, so even if Germanys industry declines, German products can be found in many countries, he said. These cars and other products still meet standards developed in Germany, and that means lubricants developed and used in Germany will be exported to manufacturing sites all over the world.