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Where in the World are Lubes Going?


OSTFILDERN, Germany – The worlds appetite for lubricants has begun growing again, but only because Asias emerging markets are far outstripping the mature, flat-lining markets of North America, Western Europe and Japan, according to data presented here recently.

Updated figures for 2004 show 1.8 percent growth in worldwide lubricants demand including marine oils, a clear recovery over the prior year, said Georg Lingg of Fuchs Petrolub AG. Speaking to the 15th International Colloquium Tribology at the Technische Akademie Esslingen, he said world lubes demand hit 37.9 million metric tons in 2004, propelled by disproportionate growth in Brazil and China.

However, todays shifts in demand go beyond geography, the Mannheim-based executive said in his Jan. 17 address to the colloquium. The quality and type of lubricants consumed in each region, and not macroeconomic markers such as vehicle population and GDP growth, are what signal the best opportunities for lube sellers, said Lingg, head of the companys industrial lube technology, supply chain and marketing.

Over the last 14 years, certain world regions have gained and other have lost, he observed. Europes share has fallen from 38.9 percent of global lubricants demand in 1990 to only 26.3 percent in 2004. Particularly hard hit has been Western Europe, where demand in 2004 fell to just under 4.7 million metric tons, its lowest in the past 15 years.

Gaining in this struggle have been the recovering economies of Central and Eastern Europe. Here, lubricants demand surpassed that of Western Europe for the first time since 1997, and reached 4.8 million metric tons in 2004.

Of course, Lingg acknowledged, Asia Pacific and Near/Middle East [together] continue to be the largest, most dynamic lubricants region in the world, with around 37 percent now of global lube supplies. In 1990, though, this regions share was only some 25 percent.

Lingg, who in January took a seat on Fuchss executive board, and his co-author, Apu Gosalia of the companys Strategic Marketing Department, also spent time looking at trends in individual countries. Their research shows that the United States continues to be the worlds single largest lube consumer, with 20.4 percent of the total volume, said Lingg. Next is China at 11.2 percent, Japan with 5.2 percent, and Russia (4.4 percent). Brazil, India and Germany fill the ranks of the top seven consumers.

Per-capita demand for lubricants in each of these countries, however, suggests that the mature markets can expect to lose ground even more quickly to the populous, developing ones. Lube demand in the United States, for example, is around 25 kilograms per person per year now. In Japan its 14.7 kg/year and in Germany 12.5 kg. However, despite their rapid motorizing, Chinas per capita hunger for lubes is still only 3.1 kg/year, and in India it is a mere 1.1 kg. – leaving far more room for growth.

Overall, 55.7 percent of the worlds lubricants today are used in automotive applications (it once was greater than 60 percent) and more than half of that goes into commercial use, i.e., fleets and off-road, and less than half into passenger cars and vans, Lingg said.

Automotive lube use varies widely by region, however. For example, at 47 percent, the lowest automotive lubricants share is in Western Europe; the highest is Near/Middle East, where they make up approximately 74 percent.

Whats more, Lingg noted, there has been a marked decoupling of GDP variance on the one hand and lubricants consumption on the other. The world just needs fewer lubricants per unit of economic output in the course of time, he stated. He even sees a negative correlation in the case of Western Europe, where GDP has grown in the past 10 years while lube demand has actually declined.

This would suggest for highly industrialized and motorized parts of the world that the more money people have in their pocket, the more they go for sophisticated, advanced-quality lubricants and high-performance lifetime lubricants, Lingg suggested. Compounding this effect are lower volatility rates (meaning less need to top-off) and fewer total-loss lubricant applications.

Even in Asia this trend is being felt. Despite the rapid expansion of car ownership, on a global basis, lubricants demand has stopped directly following the increase in vehicle population in the past 10 years, he said. Fewer lubricants were consumed per vehicle as a result of longer drain intervals and improved materials management. If you look at the new equipment rising to replace the old truck and bus fleets in a country like India, he added, it is clear that future generations of vehicles will fully exploit maximum lube efficiency, and thus dilute underlying growth.

This trend can be seen everywhere. The U.S., now sopping up lubes at a rate of 25 kg/person/year, needed 34 kg/person only 15 years ago, Fuchss research shows. Per capita lube demand in Western Europe fell from 15.1 kg/person in 1990 to just 11.8 kg in 2004, and Central and Eastern Europes demand was nearly halved in that time, from 23 kg/person in 1990 to just over 12 kg in 2004.

In all, per capita lube consumption worldwide has fallen nearly a quarter, from 7.3 kg a year in 1990 to just 5.6 kg in 2004. This suggests that such levels of consumption are obsolete, and that the boom economies of Asia, Latin America and the Middle East will never reach them. Instead, lubes demand there will see more moderate rates of growth in coming years, Lingg said.

On the industrial side, too, the long-standing correlation between industrial activity and lubricants demand has weakened, so using industrial output to predict the strength of lube demand is no longer valid – though it may signal the direction demand will take. For now, industrial lubricants are chugging along, growing an average 2.6 percent a year over the past five years, Fuchs data show. Hydraulic oils are the largest product group here, followed by specialty products and process oils.

Turning his attention to the players in the global lubes marketplace, Lingg said Fuchs believes that Shell is the volume sales leader if you exclude marine oils, followed by ExxonMobil. (If you include marine oils, the two would be equally sized.) BP, Petrochina and Sinopec (together), and Chevron rank third, fourth and fifth, respectively, while Total, Lukoil, Fuchs, Nippon Oil and Valvoline complete the top 10.

The worlds largest six lubricant companies are also its largest automotive lube suppliers, Fuchs data show. But industrial lubes and especially metalworking fluids crack that mold.

When it comes to industrial lubricants, including related specialties but without process oils, ExxonMobil leads the world ranking, with Shell in second place, Petrochina/Sinopec third, and Chevron fourth. BP is fifth and Fuchs rises to sixth place. Importantly, the top 1 percent of lubricant blenders and compounders hold just over 50 percent of the global [industrial lubes] marketplace, Lingg noted, which leaves more elbow-room for other contenders.

And if you drill down into a niche market like metalworking fluids and corrosion preventives, you get a completely different picture, he added, as the independents clearly dominate this market segment and enjoy a 68 percent global share, while major oil and chemical companies account for less than one-third of worldwide volumes.

The glaring exception is Western Europe. Here the top five players – ExxonMobil, Shell, BP, Fuchs and Total – share 70 percent of the total lubes market and close to 80 percent of industrial lubricants, Lingg asserted. Fuchs attributes this to industry consolidation and the teaming up of certain independents with majors – for instance, BP and Castrol in 2000.

Overall, there more than 1,400 manufacturers of finished lubricants in the world, and the top 1 percent of these supply more than 60 percent of global demand. The lubricants industry – like the chemical industry – is still a fairly fragmented world and will undoubtedly see more change and significantly fewer players, Lingg forecast.

Lubricants volume growth will continue to be only moderate and will take place just in certain countries and world regions. But there will be much qualitative growth in terms of lube technology and environmental compatibility – and that is where the opportunities lie.

Consolidation will continue to thin the ranks of lube manufacturers, so in the next five to 10 years there will be significantly fewer market participants, Lingg concluded. But there will also always be opportunities to grow and prosper.

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