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Continental Divides


After decades of economic upheaval, South America again is tickling the interest of global lubricant marketers. This region consumes only about 9 percent of the lubes sold worldwide – far less than its neighbors to the north. But as lube demand dims in North America and Western Europe, South America is beginning to shine. By 2007, its appetite for lubricants will pass 2.5 million metric tons per year, predicts an official with Brazilian oil giant Petrobras.

Political and social tumult have cast a shadow over the regions industrial progress, but there are signs of recovery, says Renato Marques de Oliveira, lubricant coordinator for Petrobras in Rio de Janeiro. Overall economic growth was 5.5 percent last year, the second consecutive year of growth. Inflation abated to 7.5 percent, unemployment fell to 10 percent, exports rose. South America is home to two of the worlds largest multinational oil companies: Petrobras, which de Oliveira ranks No. 15 overall, and Petroleos de Venezuela S.A. Brazil by far leads the continent in industrial activity, and likewise in consumption of lubricants, with a finished lube market of 1.2 million tons in 2004, de Oliveira told Februarys ICIS-LOR World Base Oils Conference in London. The next-largest lube consumers were Argentina (260,000 t/y) and Venezuela (230,000 t/y).

Overall, Shell – including its Pennzoil and Quaker State brands – leads the South American market for finished lubricants, with a 13.6 percent share. Next-largest is ChevronTexaco with 18 percent, and ExxonMobil with 14 percent. Petrobras holds 8.2 percent, trailed by Castrol with 4.4 percent market share. That leaves 41.8 percent of the continents demand to be filled by others, including hundreds of scrappy and not always trustworthy independents, indicated de Oliveira.

The continent has 10 base oil refineries: three in Brazil, two in Venezuela, one in the Antilles, two in Argentina, and one small one each in Colombia and Bolivia. Here too, Brazil leads the pack, producing 752,000 tons of base oil in 2003.

Bustling Brazil

Petrobras owns 98 percent of Brazils refining capacity, including the base oil plants. Since the 1990s, the company has been publicly traded, with the government owning 58 percent of shares. With privatization came a renewed emphasis on profits, said de Oliveira, and a sharper look at what lubricants could bring to the bottom line.

On its home turf, Petrobras holds 18 percent of the total lubricants market, followed very closely by Texaco at 17 percent, and Brazilian independent Ipiranga with 12 percent. Shell (8 percent) and ExxonMobil (7 percent) are here too, as are a feisty mix of international brands: Spains Repsol, FL and Agip from Italy, and BP Castrol, each with 2 to 5 percent of the market. More than 150 other companies vie for the remaining 22 percent of the market.

Some of these put strange products in the market, like SA engine oil without quality or additives, at very low prices, which makes it hard to compete, de Oliveira said. The government mandates that the minimum quality level of PCMO should be API SE (soon to be raised to SF), yet poor quality oils persist.

Three Hopefuls

De Oliveira went on to provide thumbnail sketches of the regions other principal lube markets, beginning with the second largest, Argentina. Repsol-YPF is the leader here, with 37 percent of the total lube oil market, followed by Shell (24 percent) and ExxonMobil (12 percent), he said.

One of Argentinas success stories has been Total, marketing largely under the Elf label. Elf grew because of French cars having a very good part of the vehicle fleet in Argentina, de Oliveira said. Argentina is a net exporter of both base oils and finished lubricants. Lube oil centers are the fastest growing retail channel for lubricants in Argentina for PCMO, and are taking market from service stations, de Oliveira added. But the main channel to market is still the service station, in general. Obsolete SA/SB oils retain a foothold in this budget-minded market.

Colombia has a widely dispersed population, and this less-concentrated population makes logistics more difficult, observed de Oliveira. Demand for lubricants is growing, thanks to an expanding vehicle fleet. Colombia has a very good risk classification, he added, the second best in South America, after Chile. Lube market leaders here are multinationals like ExxonMobil, Shell and ChevronTexaco, who together hold over 70 percent of the market. Ecopetrol operates the countrys sole base oil plant.

Chile is South Americas only country where the Mobil brand has a big presence, and here it holds 30.8 percent of the market, de Oliveira related. Chile also sees dynamic renewal of its vehicle fleet, with the average car only 3 years old. This may be one reason why engine oil consumers have high confidence in OEM recommendations, he suggested. Chiles mining industry is a significant user of lubricants, as well.

More Snapshots

Bolivia is a challenge, beginning with its logistics. The roads are so bad that your drums reach the market almost destroyed, de Oliveira said. Petrobras has had significant success in this under-served country, and today has 15 percent market share – from only 4 percent of the market here one year ago, pointed out de Oliveira. The largest brand is YPFB, and it is produced by contract at a Petrobras facility – Bolivias only blending plant. Despite a national agency that registers lube products and sets a threshold quality for PCMO, poor quality oils do exist. Some extralegal marketers cross the border, buy lubes in Argentina and bring it back for sale. There is also recovered oil being sold, de Oliveira said, from those who buy used oil, just filter it and then resell it.

Uruguay also has one lubricant blending plant, operated by ANCAP. SA and SB oils are present, and other fishy products too, de Oliveira said. Some will buy base oil and bring it in as process oil, then put it in someone elses drums and sell it as lubricants. Four companies manage all of Uruguays service stations, and its base oils are all imported.

Paraguay is more diverse. Shell leads the market with a 26 percent share, followed by ChevronTexaco (16 percent), Petrobras (12 percent), Ipiranga (10 percent) and ExxonMobil (6 percent). That still leaves 30 percent to be shared by the 130 other brands that crowd this market. The country has mandated a minimum quality. When they didnt, SA represented two-thirds of the motor oil market. So if you dont have a minimum, you get straight mineral oil in the market, de Oliveira warned.

Peru is another promising market. Lima, the capital city, has 11 million inhabitants – more than 70 percent of the market, which is good for logistics, he noted. Shell and Pennzoil-Quaker State each have a blending plant here, which may be ripe for consolidation, de Oliveira speculated.

Ecuadors currency is actually the U.S. dollar, and it has a small population. And it has a culture of oil changes in a short period, giving it an unexpectedly high lube consumption, de Oliveira said. Texaco, the lube leader, distributes its branded products here through a strong and well-organized system. This is the only country where I found Valvoline so strong in the region, with 14 percent of the market, de Oliveira added.

He concluded with a look at Venezuela, where the lubes giant unmistakably is Deltaven, the marketing arm of PDVSA, with 28 percent of the market. Otherwise, Venezuelas lube market is pulverized into many little domestic companies, each having a very small share of market, de Oliveira said. Interestingly, this is the only country in the region where youll find a BP-

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