For 2014, economists are expecting global GDP to reach 3.6 percent, continued Lindemann. And while some might take this as a good omen for the lubricants industry, he reminded the gathering that GDP is no bellwether of lubricants demand. Lubricants growth always seems to be lagging GDP about 4 percent, he said, so we foresee 2014 demand to be stable – still around 35 million metric tons [excluding marine oils]. At best, lubricants volume demand may grow between 1.0 and 1.5 percent this year, his company is forecasting.

Normally, you think if the economy grows – especially the automobile population – so will lubricants, Lindemann went on. But modern technology is moving more rapidly, even in developing countries like China, and that means overall slower growth.

As evidence, he pointed to the worlds vehicle population. In 2000, it was about 750 million units; currently, its at 1 billion vehicles, yet the average volume of lubricants consumed per car has fallen sharply in the intervening years, due to better efficiency. The net result is easing demand for automotive lubricants.

The same story can be seen in industrial and metalworking lubricant applications, where fewer gallons of lubricants are needed despite rising productivity. Lubricants volume demand has been at a virtual standstill since 2000, when consumption was 36.4 million tons worldwide. Despite a decade of rapid industrialization in China, India, Brazil and elsewhere, the needle has hardly budged. So increasing the economy will not lead to increasing lubricant consumption, Lindemann asserted.

More Challenges

Flat-to-declining volume demand is not the only challenge facing lubricant blenders, he advised the colloquium, which was held at the Technische Akademie Esslingen in Ostfildern, Germany. Other challenges to lubricant manufacturers and marketers include how to reliably source raw materials; comply with regulatory mandates (such as REACH and the Global Harmonized System for hazard communication); and satisfy stringent performance demands from original equipment manufacturers.

For many OEMs today, the lubricant is considered part of their products construction, Lindemann said, and to control lubricant performance and quality, these manufacturers write rigorous fluid specifications that restrict the interchangeability of raw materials. As well, he added, there are high product development costs to meet the specifications, plus extended quality control requirements and intellectual property protections that have to be considered.

Lubricants are not losing importance, emphasized the Mannheim, Germany-based executive. No engine works without lubricants. But OEMs are demanding that we design to specification, and that means we have more challenges in the research and development world of lubricants.

Lubricant manufacturers now are seeing a high degree of specificity in the raw materials needed to make approved lubricants. And unfortunately, not every chemical manufacturer is interested in products with low volumes and high complexity. Sourcing and security of supply are ongoing challenges, and ones that only sharpen when a supplier withdraws from the market or, worse, decides to compete on its own.

Fuchs Petrolub is seeing a number of such efforts in the lubricants supply chain. Previously, the chain was simply base oil refiners and chemical companies who sold to blenders, Lindemann remarked, with blenders at the end of the chain. Now, we see the supplier is becoming a competitor and is moving to the top of the chain.

Last in Line?

Meanwhile, consolidation of the chemical and petrochemical industries is reducing the supply choices, with fewer molecules available from fewer vendors. Many times, independent blenders find themselves last in the queue for materials, Lindemann said.

We are seeing reduced availability of base stocks, especially specialty cuts like bright stock and certain light cuts. We also are seeing rising demand for API Group II, III and III-plus stocks, but this supply is not from European sources, making it more difficult to obtain. He expects API Group I base oils will die out slightly, due to technology demand and the costs of refining. We are completely dependent on these for many products, and have to rely on North America for supplies.

Looking at raw material availability, base oil equals about 80 percent of our ingredient needs, Lindemann said. And while base stock capacity is growing rapidly in many parts of the world, particularly Asia-Pacific and the Middle East, Western Europe is not sharing in this growth for the most part. So were seeing an increasing number of refineries – although not in Europe – and a decrease in Group I refining.

Polyalphaolefin is another critical raw material for lubricant blenders, and one that has few global suppliers, he noted. So when one of these is tight on supply or has a plant outage, the impact is felt acutely.

Another example, he said, are gas-to-liquids base stocks. Many specialty lubricant blenders had waited eagerly for these synthetic API Group III base oils to arrive, after hearing them ballyhooed since 2000. Finally the world-scale Pearl plant in Qatar – a joint venture of Shell and Qatar Petroleum – came on stream in 2011. But despite much anticipation, the output is not being offered in the market, Lindemann noted with disappointment. Instead it is all being kept by Shell, to satisfy captive demand. So as part of the base oil landscape, GTL does not exist.

Other Group III base stocks are also coming on stream, but Fuchs expects that as China and other markets in Asia-Pacific turn to higher quality lubricants, they will soak up whatever Group III supply is around. As for Western Europe, even if Group III is needed here, it will first disappear into Asia.

Big and Small

The competitive landscape is changing in another way. Merger and acquisition activity in the global lubricants arena is typically around 12 to 14 deals a year, Lindemann said. This activity has thinned the ranks severely, and continues to do so. In the mid-1990s the world held around 1,500 independent lube companies (counting those greater than 1,000 tons a year in size) and 200 majors. By 2005, they had pancaked down to 590 independents and 130 majors.

At the same time, various government-controlled national oil companies have stepped outside their traditional borders, moving into global markets with both finished lubricants and base oils. One such example is Petronas, the national oil company of Malaysia. In 2000, it was absent from the international arena, but following investments in base oil refining and marketing, and bolt-ons like the FL Selenia global lubricants business, it now has a strong presence in Europe, North America and South America. Today Fuchs ranks it as 14th out of the top 15 global lubricant companies.

Gulf Oil, which bought Houghton International in 2012, is another example of a company catapulting into the upper ranks of lube manufacturing by the path of acquisition. Neither Gulf nor Houghton was in the top tier in 2000, yet together theyve reached number 15 on the list.

As well, some majors are retracting from hard-to-serve niches, creating opportunities for independents. One example was Shells sale of its food-grade lubricant business, which Fuchs was happy to buy.

The number of independent lubricant manufacturers is still decreasing, said Lindemann, and the number of majors is still decreasing. The key is value strategy, so we saw ExxonMobil coming down in market share rather than chase after lower-value volumes. Looking now at whos left, Shell, ExxonMobil and BP-Castrol are the worlds top three lubricant companies, in that order.

Elsewhere in the competitive landscape, Lindemann said some longtime suppliers are extending their value chain and setting up in competition with their blender customers. He singled out two recent examples: Calumet Specialty Products, the U.S. refiner of paraffinic and naphthenic base stocks, bought several finished lubricant businesses, including Royal Purple, Bel-Ray and Hercules synthetic aviation and refrigeration lubes operation. Second, weve seen the additive company Lubrizol do the same, by buying the grease manufacturer Chemtool.

What next?

Can independent lubricant blenders really thrive in this competitive landscape? Apu Gosalia, Fuchs head of global competitive intelligence and chief sustainability officer, offered further insights in a keynote address to the ICIS World Base Oils & Lubricants Conference in London, in late February.

Like Lindemann, Gosalia emphasized the importance of blenders questioning their operations and materials on the basis of sustainability. Sustainability along the dimensions of economic, ecological and social responsibility will remain a driving force in the lubricants industry, to sustain ability in the future, he averred.

Gosalia also suggested that todays near-flat global outlook masks huge regional differences, and disguises some big opportunities. For example, Chinas appetite for lubes – over 6 million tons in 2013 – puts it in first place worldwide, and the countrys meager per capita consumption (less than 4 kilograms) shows potential for lots more growth.

Worldwide, per capita lube consumption averages about 5 kg, but regional variations are stark. Asia and Africa have room for increased demand, noted Gosalia, while North America consumed over 18 kg per person in 2013. Per capita consumption in Asia-Pacific was less than 4 kg and only about 2 kg in Africa. Western Europe consumed about 9 kg per person, Eastern Europe and the Middle East each consumed nearly 8 kg per person, and Latin America consumed just over 5 kg per person.

The top 20 lubricant-consuming countries make up 75 percent of global lubricant demand, Gosalia continued. First on that list is China, nosing out the United States where demand last year did not quite reach 6 million tons.

Number three on the list is India, which consumed about 1.5 million tons last year, followed by Russia, Japan, Brazil, Germany, Korea, Mexico and Iran.

By region, Fuchs estimates the following lubricant demand growth occurred from 2012 to 2013: North America, 0; Latin America, 1.7 percent; Western Europe, down 0.6 percent; Eastern Europe, 0.9 percent; Middle East, 1.5 percent; Africa, 0.9 percent; and Asia-Pacific, 1.4 percent. z

Nancy DeMarco contributed to this article.