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No Rebound Seen for U.S. Lubes.

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Between 2006 and 2009, overall consumption of U.S. consumer automotive lubricants declined at an average annual rate of 9.2 percent. But overall market value remained unchanged at $5.1 billion, consultancy Kline and Co. found.

Looking ahead, demand will grow by 2.4 percent per year from 2009 to 2014, said George Morvey. However, demand will not return to 2007 levels, said the project manager in Klines Little Falls, N.J.-based Energy Practice.

In 2009, were estimating the U.S. consumer automotive market at 586 million gallons, with just over $5 billion in revenue, Morvey stated during an Aug. 18 web presentation. That compares to 783.9 million gallons and $5.1 billion revenue in 2006, and 838.4 million gallons with $3.4 billion revenue in 2003.

The decline in consumption between 2006 and 2009 was due to multiple market and economic factors, he pointed out, including declining new vehicle sales, escalating fuel prices, fewer vehicle miles traveled, extended drain intervals, penetration of synthetics, and more recently the global economic recession. Another factor was the shift towards filled-for-life components, such as automatic transmissions, gearboxes and transaxles. The shift from do-it-yourself to do-it-for-me oil changes also played a role.

This markets overall value had been rising since 2003, thanks in part to the introduction of the American Petroleum Institutes SM ser-vice category in 2004. That had an impact on the price of engine oil, and in the next couple of months well see introduction of API SN, Morvey asserted. All indications are the price point will be higher over current price points. That will have an impact across the entire supply chain.

According to Klines estimates for 2009, Shell was the leading U.S. supplier of consumer automotive lubricants at 24 percent of total consumption. It was followed by Valvoline and BP at 13 percent each, ExxonMobil at 9 percent, ConocoPhillips with 7 percent, Chevron at 6 percent and Citgo with 1 percent. The remaining 27 percent included companies such as Pinnacle, Warren Oil, Amalie and American Refining Group, along with many other national and regional companies.

Viscositys Vista

Kline estimated that SAE 5W-30 was the leading passenger car motor oil viscosity grade in 2009, capturing 51 percent of total U.S. demand. However, we do see 5W-20 demand rising significantly from where it was in 2006, to just under 20 percent of the total volume, Morvey observed. This is really due to the Ford factory and service fill, the Honda factory and service fill, and to some extent Toyota. We do see demand for the 10W-30 and 10W-40 shifting and favoring the 5Ws.

Kline sees exciting opportunities for 0W multigrade oils, he asserted. We do see them poised for growth beginning in 2010, as Toyota and Honda shift their factory and service fill requirements away from 5Ws to 0Ws to meet stricter fuel economy regulations, Morvey continued. That will certainly be something to watch, and certainly offer opportunities for suppliers and installers.

Slipping Volumes

Kline pegged overall finished lubricant demand in North America (including the United States, Canada and Mexico) at 2.6 billion gallons in 2009, down 12 percent from nearly 3 billion gallons in 2008. Commercial lubricants demand for the region declined 14 percent to 624 million gallons, while consumer automotive demand fell 13 percent to 700 million gallons in 2009, compared to 2008 totals. Thats a function of many factors, including extended drain intervals, vehicle miles traveled, and the penetration of synthetics, Morvey said. Kline includes process oils and marine oils under industrial, which accounted for about half the total volume.

The recession has had the biggest overall impact. If we look at the rate of recovery in the forecast from 2009 out to 2014, we do see the North American market emerging from recession, and beginning to recover, Morvey observed. However, by 2014 we still see the total industry demand to be less than the pre-recession levels from 2007. Kline gauged the 2007 total finished lubricants demand at almost 3.2 billion gallons. So really this growth here across all three segments is just a recovery from the big decline due to impact of the recession, he added.

Klines forecast sees the North American finished lubricants demand recovering to almost 2.9 billion gallons by 2014 and then essentially flat going forward from that point. We really dont see the market recovering to levels from 2007 or earlier years, Morvey remarked.

Country Views

With more than 2.2 billion gallons, the U.S. accounted for about 85 percent of the total North American demand in 2009. U.S. demand was 51 percent industrial (1.1 billion gallons), 26 percent consumer automotive (586 million gallons) and 23 percent commercial automotive (501 million gallons).

Kline expects U.S. finished lubricant demand to reach almost 2.5 billion gallons by 2014, recovering some of the volume lost due to the recession. From 2009 to 2014, Kline forecasts U.S. demand increases of 1.5 percent per year for industrial finished lubricants, 2.4 percent per year for consumer automotive and 3 percent per year for commercial automotive.

Canada accounted for about 8 percent of the total North American demand in 2009, at about 207 million gallons. That represented a nearly 9 percent decline from its 2008 demand, again due largely to the impact of the recession. We do see again a rebound, but really thats just lost volume recovery. Again like the U.S., it is not seen recovering to pre-recessionary levels of 2007.

Mexico accounted for almost 7 percent of the total North American lubricants demand in 2009, with 180 million gallons. The forecast suggests the Mexican market demand will recover some of its volumes, to 209 million gallons in 2014.

Top Brands

Major branded suppliers combined accounted for 44 percent of the total North American demand in 2009. Shell, ExxonMobil and Chevron were the top three suppliers in the United States.

The overall major branded volume was down 15 percent compared to 2008. We did see branded volume suffer on two fronts – certainly the impact of the recession, but also heightened competition from private label brands, Morvey noted. People have in some cases shifted from the major brands to perhaps a brand in one of the mass merchandisers or auto parts store that support their own branded volume.

Within the U.S. market, ExxonMobil is the industrial leader among major branded suppliers, trailed by Chevron and Conoco- Phillips. Meanwhile, Shell led in consumer and commercial automotive finished lubricant sales in 2009, with Valvoline and BP behind it.

Industrial & Commercial

Drivers affecting demand for industrial oil and fluids have included the recessions impacts on transportation equipment, vehicle manufacturing, chemical, and machinery industries, among others.

Most recently, postponing scheduled maintenance has certainly had a negative impact, he said. For major branded suppliers, competition from independent lubricant manufacturers, private label and house brands, has been an issue. We expect that will continue to be an issue. On the positive side, there are also some industries that still remain positive and offer good opportunities for suppliers. He cited energy and food industries as key examples.

Commercial automotive lubricant demand has felt the impact of significant fleet reduction and slumps in key industries. Morvey said significant reduction has occurred in national, regional and independent fleets.

There has been a reduction in demand for their services, with more trucks sitting in yards than out on the roads, and lower miles driven, he added. Those factors have collectively had a strong impact on demand over the last few years.

Industries hitting a slump include aggregate (sand and gravel), construction and mining. Conversely, the [agriculture] industry was not as badly impacted, Morvey pointed out. And demand remains relatively positive in that space.

Klines report is titled, Opportunities in Lubricants 2008-2010: North American Market Analysis, Vol. II: Consumer Automotive 2009.

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