Africa Caught Between Group I and II
The transition from API Group I to Group II in the Middle East is often talked about. But there is another key market where this is also taking place: Africa. Emeka Umejei takes a look at the factors that are effecting this shift, from cost to logistics.
With the momentum that Group II base oils have gained on the global finished lubricant market, many presumed – maybe prematurely – that it would gain traction across some major markets in Africa. But that has not yet been the case. Even demand in African countries where Group II has made inroads is on the decline.
Much Group II base oil demand emanates from the United States and the Asia-Pacific region, whereas uptake has been slower in Europe. Meanwhile, African lube blenders are vacillating between Group I and Group II base stocks, mostly influenced by cost, a point underscored by Patrick Swan, principal consultant at Aswan Consulting, at the 7th ICIS African Base Oils & Lubricants Conference in Cape Town, South Africa. If the price of Group I is lower than Group II, many blenders will buy that grade, and vice versa.
While this has been the case in more advanced markets like South Africa and, to a lesser extent, Morocco – where there is substantial need for higher-spec, factory-fill lubricants for major carmakers operating in the country – the rest of Africa has stuck to Group I oils.
The question is whether African countries will ever make the move to Group II to the same extent as more mature markets. The answer is not straightforward and depends on economic performance. For example, in South Africa, which has until now made progress with Group II oils, the challenges faced by its economy have resulted in the resurgence of Group I oils.
Mohammed El Assar, global development manager at ExxonMobil Fuels & Lubricants, explained in a presentation at the same conference that while the global trend is toward Group II, the shift will be slow in Africa.
Globally, everybody is moving towards Group II, that is something we cannot deny, said Assar. From what we are seeing in Africa…the rate of change to Group II is at a much slower pace because there is a lot of formulation with Group I in industrial products, mining, energy and infrastructure [construction]. Furthermore, he acknowledged, the African supply chain is complex, which impacts the shift.
Assar contended that a shift from Group I to Group II is also reinforced by several macro trends, including increasing demand for energy efficiency and the need to reduce greenhouse gas emissions; and elevations of other performance demands, such as durability in severe operating conditions and longer drain intervals.
In another presentation, Ahlben Phillipus, chief operating officer of African Group Lubricants Pty Ltd and Centlube – both distributors of ExxonMobils oils – noted that some African countries find it challenging to meet the performance demands of original equipment manufacturers, due to the fluctuating quality of base oils available on the continents markets, he said.
Philips noted that while the latest OEM specifications require Group II and Group III base oils, most African markets are still heavily reliant on Group I imports. He told LubesnGreases that OEMs alone cannot drive the African lubricant market to Group II oils because the cost advantage of Group I oil is too tempting to ignore.
Assar said OEMs do have a role in driving the shift toward Group II in Africa but that it is largely dependent on economics.
I think there are two sides to the question concerning the role of OEMs to drive the shift to Group II in Africa, said Assar. There is the OEM that will drive it, and there is also the affordability. So, if I go into a country and decide to sell all my Mercedes-Benzes on the market where people do not have the financial capacity to buy, then I wont make any sales. But if I take it to South Africa or Morocco, I will make more sales. Yes, the OEM has an influence on the shift to Group II, but it has to come from income growth, economy, etc.
Kenya, which has become a hub for auto assembly plants in East Africa, is not on the verge of moving to Group II, said Jonathan Njine, managing director of independent lubricants distributor Lubesol Kenya Ltd. Despite the increase in the number of vehicle assemblers in Kenya, Kenyans still prefer reconditioned cars, dampening the switch to Group II, he told LubesnGreases.
Boston Moonsamy, CEO of South African base oil and additives distributor Umongo Petroleum Pty, also told LubesnGreases that OEMs and multinationals are driving the move to Group II in South Africa but acknowledged that it will be a slow process.
It could happen within the next three years for multinationals to move to Group II but most multinationals are moving slowly, he said.
According to Moonsamy, Group I currently comprises about 70 percent of the market while Group II is about 30 percent in South Africa. The country was the most advanced Group II market in Africa, and many thought there would have been around a 60 percent switch, but that projection has not materialized.
Aswans Swan agreed that multinationals would drive the transition to Group II and emphasized that ultimately, we will see a growth in Group II oils from everyone because the cost of Group II is coming down. [The market] is still predominantly Group I, but it is changing slowly.
The Nigerian and Egyptian markets are still mainly Group I, and the possibility that they could shift to Group II in the long term does not seem viable.
Assar advised that stakeholders in Africas lubricant sector should to try to understand the outcome of demand trends and should not move from Group I oils to Group II oils prematurely.
You need to segment the market. With Egypt, Morocco and South Africa – they are either producing or importing cars that would need Group II products. So it is important to understand your market and then make a decision to stay in Group I or move to Group II.
The enthusiasm that greeted the uptake of Group II oils in Africa at the outset appears to be declining. The situation in South Africa, where independents are moving back to Group I, is a case in point. In addition, Nigeria, Egypt and Algeria are predominantly Group I markets, and the possibility that they will move over to Group II in the long term remains debatable.
Africa will remain a Group I market for the foreseeable future, with the shift more likely to happen in South Africa and Morocco because of the influence of OEMs and European standards.