Developing economies are outperforming lubricant demand in Europe and North America. Boris Kamchev provides a snapshot of the market landscape in Africa, one of the regions where lube suppliers can find comfort in an otherwise underwhelming global scene.

Global demand for finished lubricants has been pretty much flat over the past 10 years, and it will probably stay that way for the next half decade, according to Sergey Sidorov, a senior energy consultant at Kline & Co.

Improving engine efficiency, longer drain intervals and modest industrial growth are among many factors that that have kept a lid on finished lubricant demand in developed economies for several years, despite a gradual increase in the number of vehicles on European and American roads. The United States-based consultancy and market research firm Kline expects that increased demand from developing economies in Asia, the Middle East and Africa will offset any declines.

Africa is one of the better performers in the group of developing economic regions that are tilting global lubricant demand toward a single-digit upward trend.

It definitely makes a positive impact on global growth, Mohamed El Assar, the global development manager of ExxonMobil Fuels and Lubricants, told the ICIS African Base Oils & Lubricants conference held in Cape Town, South Africa last November.

According to El Assar, Africas base stock demand will rise by 37 percent by 2030, compared with global growth of 11 percent.

At a separate event, Klines Sidorov was similarly enthusiastic about growth patterns in developing markets. Among the top 20 lubricants markets, only developing countries are displaying any meaningful volumetric growth, and they have become target of most growth strategies, Sidorov told GBCs CIS Base Oils and Lubricants conference held in Moscow in May. Both Egypt and Nigeria are among this top 20, which is unsurprisingly dominated by Asian markets.

Base Oil Case

One of Africas market characteristics is that demand for API Group I base oils will continue to rise. This grade will remain the dominant choice of the regions lubricant manufacturers, partly due to the continents aged vehicle fleet and cost consciousness.

African lubricant markets have heard steady discussion in the past few years about whether base oil demand might begin shifting from Group I to Group II, based on the rising quality of finished lubes. But it wont happen anytime soon, El Assar said.

Citing a forecast by market research company Mordor Intelligence, he said that total base stock demand in the continent is expected to rise to 2 million metric tons per year by 2023, a nearly 18 percent jump from the roughly 1.7 million t/y in 2018, and Group I demand will steadily rise with it.

High industrial growth is leading to increased investment opportunities and increased Group I demand, El Assar said. Group II demand is projected to remain approximately the same, while Group III sees slight growth.

By comparison, global Group I demand has been steadily shrinking for two decades, and ExxonMobil projects that it will continue to slump to around 25 percent of demand in 2030. The company also expects demand for Group II, in tandem with Group III, will also increase and combined they will offset the decrease of Group I. Group II will constitute more than half of global demand by 2030. Group III demand is also forecast to rise, albeit at a slower pace.

Africa has almost no base oil production capacity and therefore depends on a complex network of supply chains for its base oils, El Assar added. Group I oils are shipped regularly across the Mediterranean from producers in southern Europe, supplemented by spot sales and trading activity through the Black and Baltic seas from Russia and across the Atlantic from the United States. Group II supplies come in regularly from the U.S. Gulf Coast, as well, and Group III is imported from the Middle East and Spain.

Lube Landscape

Africa has several distinct regional finished lubricant markets, El Assar explained. North Africa features the major regional industrial center of Egypt, as well as Algeria and Morocco, which have become hubs for European carmakers, including Renault and Peugeot, taking advantage of cheap labor and proximity to Southern Europe. According to a report in the Wall Street Journal, Morocco has overtaken South Africa as the continents number one car producer.

Formerly home to the continents largest car industry, South Africa hosts the production plants of global heavyweights Ford, Toyota, BMW and Mercedes. It is also seen as a gateway for lube suppliers into the sub-Saharan region, and it has an extensive lubricants industry.

Nigeria is by far the largest lubricant consumer and producer in the West Africa region, and Mordor Intelligence forecasts strong economic growth in the coming years, which would further boost lube demand.

Kline predicts that Nigerias lubricant market will grow by around 4 percent by 2022, comparable to rates predicted for countries such as Brazil, Mexico or India.

East Africa depends more than other parts of the continent on finished lubricant imports from the Middle East, so it is affected by market dynamics in the Gulf region that are currently being swayed by tensions between the United States and Iran, a key exporter of Group I base oils. Kenya is also a significant regional supplier of vehicles, many of them second-hand imports.

The industrial manufacturing and automotive sectors [in Egypt, Morocco, Kenya and Nigeria] are growing rapidly, while high industrial growth leads to increased investment and opportunities and increased Group I and growing Group II base oil demand in the commercial and automotive sectors, El Assar said.

Gaining Momentum

El Assar also outlined the key implications for industry players and end consumers in Africa, where ExxonMobil has a significant footprint, both in offshore and onshore hydrocarbons exploration, as well as petrochemical refining. He urged the industry to respond to the scale of growth in Africa and address the diversity
and value the chain complexity. Enable cost-effective blending through superior base oil design and performance and ensure availability of high-quality, affordable and reliable supply.

Both Klines Sidorov and ExxonMobils El Assar agree that the continent is starting to resemble the Asian market of the 1990s by having a major contribution to the passenger car, commercial vehicle and industrial lubricant segments. This is the reverse of the stagnating markets in Europe, North America and Asia-Pacific, particularly Japan and South Korea.