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Whats Driving India?

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MUMBAI, India – Energy and synergy are the buzz-words of the Indian business media this year. Big-picture changes are discernible on the oil radar, energy security has taken center stage, and the erstwhile policy of privatizing Indias national oil companies has been turned firmly on its head.

Mani Shankar Iyer, the countrys high-profile Minister of Petroleum and Natural Gas, has begun negotiations with countries like Iran, Turkmenistan, Bangladesh, Pakistan and Myanmar to secure natural gas and transnational pipeline clearances. India is set to source natural gas from Iran and from Myanmar, with pipelines passing through Pakistan and Bangladesh, respectively.

Backed by Prime Minister Manmohan Singh, Iyer caused much tumult as he declared that upstream and downstream public-sector oil companies would be restructured to form one or two national behemoths. The goal is to generate financial muscle (for acquisition of overseas oilfields) and to make India globally competitive, particularly vis-a-vis China.

Merging all government-owned oil companies (known as PSUs, or publicsector undertakings) will reportedly create a company which would bag the 34th position on the Fortune 500 list. The candidates for consolidation include Oil and Natural Gas Corp., Gas Authority of India Ltd., Oil India Ltd., Indian Oil Corp. Ltd., Hindustan Petroleum Corp. Ltd., and Bharat Petroleum Corp. Ltd.

No matter what form it takes, consolidation is privatizations epitaph. For PSUs like Hindustan Petroleum and Bharat Petroleum – which together account for nearly 30 percent of Indias lube market – the story has come full circle with a resounding bang. Just as late as September 2003, both were in advanced stages of disinvestment, with both domestic and multinational oil companies among the declared suitors for these prized assets.

Known for his caustic management style and penchant for blunt speech, Iyer derided the pseudo competition between government oil companies, and set up the Advisory Committee on Synergy in Energy to examine options for consolidation.

So far, the proposed restructuring, still at the pre-blueprint stage, is having no appreciable impact on the functioning of majors like Indian Oil, Hindustan Petroleum and Bharat Petroleum, all of which have substantial stakes in lubricants. Since Iyer has already hinted that individual corporations will retain their identities within the country but show one face when they go abroad, lube portfolios of these corporations are continuing with their long-and short-term planning.

Bharat Petroleum, for example, is in the process of building a unit for producing high-performance Group II base stocks, using technology licensed from Chevron Lummus Global. This 3,500 b/d grass-roots plant, set to stream this year, will be the second in India to make Group II oils, after an Indian Oil facility that opened in 2003.

Economy Buoyant

The continued upswing in the economy is cause for qualified jubilation in the oil sector. Data released by the Central Statistical Organization for the period April to December 2004 indicates an 8.6 percent overall growth in industrial production compared to the same period a year earlier, driven by a strong manufacturing sector performance – machinery and equipment and commercial vehicles being chief contributors. GDP growth during the fiscal year 2004-2005 is forecast to be in the region of 6.5 percent.

The automobile sector is in overdrive. The Society of Indian Automobile Manufacturers declared 18 percent growth in the overall automobile sector and 32 percent export growth for April to December 2004, compared to the same period the previous year. Passenger vehicle sales for the fiscal year (April to March) will touch 1.03 million units, up 23 percent from the 840,000 sold last year. Car manufacturers unveiled as many as 35 new launches including new models, variants and special editions during 2004. Curiously enough, top-tag luxury cars notched 57 percent growth. Two-wheelers crossed the 6-million mark in the calendar year 2004, and the motorcycle segment grew 19.5 percent.

Crowning these skull-numbing figures, India has emerged as a carmaker hub – the total installed capacity for producing passenger vehicles is set to leap 44 percent from 1.3 million units to 1.87 million in the next two years. As global auto majors down shutters in the West and create capacities in the Asia-Pacific region, India is the most favored venue after China.

This boom bodes well for lubricant manufacturers, though shooting costs and sharper competition will continue to be the major challenges before the industry as a whole.

The Grease Scene

Grease manufacturers and marketers who gathered in mid-February for the annual NLGI-India Chapter Grease Conference at Kochi, Kerala, showed scant regard for the Petroleum Ministrys grand scheme of things. More pressing issues – like high base oil prices, a shortage of bright stock, low business growth and much-too-real competition – cornered their attention. But for the three days that the 150 delegates pondered technical niceties, it seemed that most concerns save those of grease quality were on the back-burner. Energies were directed towards networking, evaluating new ideas and unwinding during evening programs showcasing Kochis scenic beauty and Keralas vast cultural heritage.

Dr. Gian L. Fagan of Bel-Ray Corp. in Farmingdale, N.J., president of NLGI International, shared information on the parent body, reviewed its strengths and challenges, and lauded its sole successful chapter. NLGI-India Chapter Vice Presidents V.N. Sharma, director of Balmer Lawrie in Calcutta, and Durgesh Chandavarkar, director, Standard Greases, Mumbai, carried the day assisted by a dedicated troupe led by the chapters organizing secretary, R.B. Anant of Gulf Oil in Mumbai.

The meeting took place against a backdrop of slowing demand here for greases. Growth of around 3 to 4 percent in the Indian grease industry, with the total volume estimated anywhere between 70,000 to 75,000 tons, is not much to shout about. Though people tend to stretch usage when prices go up, I am inclined to think that grease volumes may show more robust growth in the near future, Sharma told LubesnGreases.

Demand for specialty greases is bound to rise, due to the current pick-up in the manufacturing sector leading to new heavy machinery moving in and also due to the steady entry of new generation vehicles, suggested Chandavarkar. Currently, specialty products account for barely 5 percent of the grease pie and of this a good chunk is directly imported to meet stringent OEM prescriptions.

The worldwide shortage of bright stock and the fear that in course of time fewer refineries will produce Group I base oil are some of the obstacles before us, cautioned Sharma. Currently, bright stock is quoted at Rs. 35 (U.S. $0.55) per liter and 500 N at Rs. 24 ($0.80) per liter. The other major perennial irritant is, of course, the unorganized market gnawing away at real growth.

Despite these hindrances, energy and synergy could well have been the watch-words at Kochi, too. Fagan was appreciative of the organizational and technical skills on display. Having people to do hands-on work is crucial as are resources and finances which come a close second, he felt. Willingness for competitors to work together and for people within companies to work on an equal basis, he added, ensures that industry bodies like the NLGI-India Chapter survive and are viable.

Technical Debate

Fagan hit the nail on the head with the term viable. That in these times of thinning margins and fierce competition the NLGI-India Chapter has not missed a single year hosting its annual conference is in itself a small feat, in terms of soliciting and polishing papers, mobilizing sponsors, and most crucially in motivating a large basket of companies to foot the fees to send delegates.

User industry participation in the grease conference was substantial. Kochi saw representation from steel, cement, aluminum and textile companies, railways, earth-moving equipment manufacturers and state transport bodies.

Significantly, the common refrain among users was the need for affordable greases that would work – never mind the chemical intricacies. Chapter President-elect Dr. R.P. Verma, executive director of Indian Oil Corp. R&D, put it neatly: For the user, it is good to go for one grade and use it for different applications, so greasemakers must tackle the challenging task of balancing the general with the specific and obtain optimal performance.

As always, senior technocrats and scientists kept up a lively tempo by participating in the question hour and sharing insights.

Numerous papers on new chemistry like sulfonate complex, lithium-calcium complex and titanium-lithium complex greases generated interest, observed Dr. K.P. Naithani, deputy general manager of Indian Oil Corp. and convener of NLGI-India Chapters Technical Committee. The papers highlighting the tribological and oxidative properties of gear oils and solutions using synthetic gear oil – where the user saves on overall lubrication cost and gets maintenance-free operation – were also well-received, he opined.

Several papers on the joint efforts of greasemakers and users, particularly in the steel, cement and aluminum industries, to develop low-cost indigenous substitutes for prohibitively expensive imported lubricants were hotly debated. So was the session on grease analysis and testing methods, such as differential scanning calorimetry, thermographic analysis, and scanning electron microscopy to study and even predict grease performance at the molecular level.

Dr. G.S. Kapur of Indian Oil R&D won the Paul Gonzalvez Memorial Award for the best technical presentation for his work, Nuclear magnetic resonance spectroscopy for molecular level characterization of lubricating oils. Debate also centered around alternatives to lithium thickener systems; substitutes for cyanide in making polyurea greases; and the sticky issue of lax grease-disposal methods.

Concerns and Plans

The NLGI-India Chapters education courses have proved most popular among greasemakers and users alike, and delegates gave a clear signal that more would be welcome. Membership remains a concern, with 17 members presently on the rolls. We are trying to encourage user-industry membership particularly from automobile companies, noted Chandavarkar of Standard Greases.

While the chapters Working Group on cement plant greases has drafted specifications to be forwarded for approval by the Bureau of Indian Standards, another working group on biodegradable greases has not really taken off. And with Indias textile industry opting for new state-of-the-art machinery, a task force to tackle the standardization of textile industry greases has been suggested.

The chapter has yet to afford a full-fledged secretariat, and Indian Oils R&D Centre at Faridabad continues to render this service. At last years conference the suggestion that NLGI-India Chapter assume a leadership position in Southeast Asia found much favor, but without full-time staff the proposal has yet to graduate to the drawing board.

In the coming months public-sector consolidation, thus far uncharted territory, will surely throw up a host of anomalies and sharpen the divide between private and public-sector camps. As its members learn the outcome of this realignment, NLGI-India Chapter may well need to plumb the depths of its creative energy to remain viable and grow.

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