Europe Leads the Way

Synthetic and semi-synthetic lubricants penetration in the passenger car motor oil market reached 33 percent in 2015, up from 29 percent in 2013, despite low or no volumetric growth in such demand. In 2015, the highest penetration of synthetics in the passenger car motor oil segment took place in Europe.

That is due to longer, existing OEM technical demand, not only in premium vehicles, but in mass market vehicles as well, George Morvey, industry manager for Klines Energy Practice, said during a November webinar, based on a report titled, Global Synthetic Lubricants. Other factors include consumers demanding extended oil drain intervals, and enjoying lower maintenance costs and improved fuel economy due to the benefits of synthetics.

Another key factor driving adoption of synthetics in Europe is hardware compatibility. Were seeing more and more OEMs, not only in Europe but also in Asia-Pacific and South America, moving to lower displacement engines, he said. From six cylinders to four, and from 4 and 2 liters to 1.8 and 1.5 liters.

Morvey noted that more and more vehicles are equipped with turbochargers and direct fuel injection systems. These hardware technologies are putting increased stress on the engines, and one way for OEMs to protect their engines and provide warranties on them is by converting their factory and service fills to synthetics.

Technical demand in Europe by original equipment manufacturers is more established than in other regions. Consumers, vehicle owners, fleet and industry – theyre more environmentally conscious, he said. Theyre looking for and understand the value of extended oil drain intervals – synthetics afford that opportunity.

Africa, ME Taking It Slow

In contrast to Europe, several factors make penetration of synthetic lubricants challenging in the Africa-Middle East region. Morvey noted that operating conditions are much harsher than in Europe or North America, and oil drain intervals are shorter. Consumer awareness of synthetics or even better quality conventional lubricants is low, he pointed out, and price sensitivity is also high.

He explained that 84 percent of PCMO demand in Africa-Middle East consists of heavy viscosity grades – such as 15W, 20W and 25W – and monogrades. These are conventional formulations, he said. As the market continues to modernize, we expect demand will move away from those heavy grades into 5Ws and 0Ws.

Counterfeiting is very prevalent, and is an issue that industry and government have to deal with, he noted. Opportunities are limited for synthetics in certain countries in these regions. He added that South Africa was one bright spot in terms of synthetic lubricant opportunities in country markets.

Marketing has played a key role in the penetration of synthetics. You certainly cannot discount the efforts of lubricant suppliers in terms of their marketing and promotional efforts, he said. I look around at all the advertisements, especially at retail for PCMO, for example. Everyone is leading with synthetics. Its rare to see anyone advertising a conventional passenger car motor oil. From the supply side, suppliers, installers and retail are doing their part.

He noted that consumer awareness and acceptance is moving toward synthetics. The price point is beginning to narrow, Morvey said. Its not as a big a jump to move from a conventional to a semi- or full synthetic.

End user loyalty also plays a major role in the synthetics market, he said, especially on the industrial side.
If maintenance managers have made a decision to swap out a compressor fluid from conventional to full synthetic, its very unlikely they will switch back, he said. They may switch brands, they may look for a cheaper option. But if someone has made a conscious effort and decision to move to synthetics, they do tend to stay loyal to the formulation.

Kline estimates the Africa-Middle East region will have the fastest growth in synthetics out to 2020. A heavier penetration of semi-synthetic lubricants is occurring in a variety of markets, including countries in Africa and the Middle East.

He pointed out that in markets such as Africa-Middle East, semi-synthetic formulations are used almost as a transitional product to introduce consumers to the benefits of synthetic lubricants. Where it may be difficult to make the jump from a conventional to a full synthetic, semi-synthetics are being used as a bridge product, Morvey explained. Its a little bit more affordable, a little easier to sell, consumers see the benefit and hopefully they make the jump to full synthetics.

Supplier Rankings

Kline estimated the top 10 suppliers of synthetic and semi-synthetic automotive and industrial lubricants combined accounted for an estimated 67 percent of the products total volume in 2015. Topping the list were ExxonMobil – including Cosan Mobil – Shell and BP.

He noted these rankings are based on the strength of their branded product offerings. ExxonMobil ranked first in estimated volume, driven by the strength of its Mobil 1, Delvac and Supreme branded product portfolio. Shell followed, driven by the strength of its Pennzoil, Helix, Quaker State, Advance, Rimula and Rotella branded product portfolio. BP was the third largest supplier based on the strength of its Castrol branded product line. The rest of the top 10 included Total, Chevron, JX Nippon, Idemitsu, Valvoline, Fuchs and Phillips 66.

Other suppliers accounted for the remaining 33 percent. In that group, Morvey noted that OEM genuine oil is one growing segment to watch, especially for suppliers of branded automotive aftermarket lubricants. More and more OEMs are getting into this space with their own genuine oils, he said. Some are completely genuine, like BMW. Others are co-branded – here its an OEM and a supplier partner. I think this is a phenomenon that will continue.

For now, Kline sees this trend being limited to the franchise workshop channel. OEM genuine oil is
unlikely to be sold at retail stores, or be available in an installed workshop or quick lube, he pointed out. OEM genuine oil is something you should keep your eye on, Morvey said. Its going to continue to get stronger. Its going to make it harder for aftermarket suppliers to compete, especially in the franchise workshop channel.

While synthetic PCMO was once the exclusive domain of the global majors, that is no longer the case. Were seeing more and more suppliers, even private label and retail, he said. The national oil companies, the [public sector undertakings], more and more competition are getting into this space. The primary driver for this is the global availability of better quality base stocks, he said, which makes it easier for everyone to get into the synthetic PCMO space and compete with the global oil majors.

What were seeing the global majors do in trying to defend their position is tiering their product offerings, Morvey noted. Global majors recognize that there is stiff competition behind them and theyre doing anything and everything they can to defend their position and keep consumers loyal to their branded product line.