The global metalworking fluids market is forecast to grow at 2.3 percent per year, from 2.2 million metric tons in 2012, to 2.5 million tons by 2017, according to Kline & Co.

Overall, Asia Pacific is expected to remain the fastest growing market for metalworking fluids through 2017, with close to 3 percent annual growth, Milind Phadke, India-based director of Klines Energy Industry Practice, said during a recent webinar. Kline forecasts the Americas to have more than 2.3 percent annual growth and Europe to attain more than 1.5 percent annual growth to 2017.

In 2012, Asia led the world with 42 percent of global metalworking fluid demand, followed by the Americas at 31 percent and Europe with 27 percent, Phadke said during the webinar, Global Metalworking Fluids: Market Analysis and Opportunities. The presentation also drew from findings in Klines Global Lubricant Additives: Market Analysis and Opportunities study.

Kline found that metal removal fluids or coolants accounted for 49 percent of the global metalworking fluids market, followed by forming fluids at 30 percent, protecting fluids with 12 percent and treat fluids at 9 percent.

Its study focused on the Americas (United States, Canada, Brazil and Mexico), Asia and Europe.

In the Americas, metalworking fluids consumption reached about 682,000 tons in 2012. The U.S. dominates the market, accounting for nearly 80 percent of metalworking fluid consumption in this region, Phadke said. Canada accounts for about 10 percent of the Americas market, followed by Brazil and Mexico, each with about 7 to 8 percent of the regions total.

The revival of manufacturing industry in the U.S., coupled with the growing economies of Mexico and Brazil would make the Americas region a rapidly growing one, though not as fast as Asia, he said.

Asia outstripped all others, and consumed about 950,000 metric tons of metalworking fluids in 2012. The key markets in this region are China, Japan, India and South Korea, Phadke said. The top two markets – China and Japan – accounted for about two-thirds of the consumption in this region. India and South Korea are also quite significant in the amount of metal­working fluids consumed, and they are also showing strong growth.

Europe accounted for just under 600,000 tons of metalworking fluid consumption in 2012. Leading markets in Europe include Russia, Germany, France, Italy and the U.K., Phadke said in late May. These top five markets account for nearly three-fourths of the consumption in this region. These five markets are also some of the most industrialized countries in the region. In the case of Europe, growth essentially will be experienced due to recovery we see happening – this would be in markets like the U.K., Russia, Spain, Italy, Poland, all of which were severely impacted by the recession.

Drilling into Products

Kline found removal fluids accounted for almost 1.1 million tons of consumption in 2012, or 49 percent of the global metalworking fluids market. Water miscible fluids dominated in this category.

Forming fluids accounted for 660,000 tons, or 30 percent of consumption. Of these, most were ferrous and non-ferrous rolling oils. Drawing and stamping fluids are another significant product segment.

Protecting fluids totaled 264,000 tons, or 12 percent of the 2012 market. Straight oil products dominate this segment in every region, ranging from around 60 percent of the total in Europe, 80 percent in the Americas, and greater than 90 percent in Asia.

Treating fluid consumption added up to 198,000 tons, or 9 percent. Straight oil was most prevalent in this segment, too.

Top Suppliers The supplier base in all three regions is extremely fragmented, said Phadke, with the top 10 suppliers accounting for just 45 percent to 55 percent of the total market in each case.

In the Americas, Houghton International and Quaker Chemical lead the way – each with more than 10 percent of the market – while Fuchs Petrolub holds the number three spot. They are followed in order by Henkel, BP Castrol, Metalworking Lubricants, Milacron, Yushiro and Chemtool. Rounding out the hemispheres top 10 is Master Chemical.

In Asia, Yushiro leads with more than 10 percent of the market. Others in the top five here are Houghton, BP Castrol, Idemitsu Kosan and Quaker Chemical.

In Europe, Houghton has the strongest position with more than 15 percent of the market, and BP Castrol holds about 10 percent. They are trailed by Fuchs, Quaker, Henkel, Carl Bechem and ExxonMobil, among others.

Very few companies account for more than 10 percent each of the market, Phadke pointed out. The picture is different at the country level, where you could have a few dominant suppliers. But by and large at the regional level, this is the picture. He said such a supply structure is something to be expected, given the nature of the metal­working fluid industry, which has a wide range of products reflecting different machining conditions, the different materials that are being processed, and also different performance requirements that buyers have.

As a result, there are very few standardized products – hence, no significant economy of scale, and hence suppliers are extremely fragmented.

Focus on Additives

Kline estimated the global consumption of additives used in metalworking fluids at about 580,000 tons in 2012. The leading additive categories included corrosion inhibitors, emulsifiers and friction modifiers.

Two key factors are driving additive consumption in the metalworking segment, Phadke said. One is a change in base fluid, as API Group I availability declines. Formulators are increasingly using naphthenic stocks, and experimenting with Group II and III base oil and other higher performance base stocks. These all present different physical and chemical properties than Group I, including their solubility. That actually has an impact on the additive formulations used, he reminded.

Another key driver is the gradual displacement of low molecular weight chlorinated paraffin, now banned in many countries. This is replaced by mid-chain or long-chain molecules, which are not as effective in offering extreme pressure protection. Phosphorous and sulfur compounds can be used as substitutes, but they bring their own problems in terms of promoting bioactivity or having unpleasant odor.

Manufacturing Moves

One of the important trends were all aware of is manufacturing activity has moved almost relentlessly from the developed nations of Europe and North America into Asia, Phadke said.

Asias share of the major fields of global industrial activity – automotive, steel and aluminum – grew rapidly due to this relocation of manufacturing assets, and was further fed by demand growth within Asia itself. This is shown by data compiled by the International Organization of Motor Vehicle Manufacturers, the World Steel Association and International Aluminium Institute. Asias share of global automotive production increased from 37 percent in 2004 to more than 50 percent in 2013. Last year, the region produced 67 percent of the worlds steel, up from only 48 percent a decade earlier. And Asias portion of global aluminum output grew from more than 35 percent in 2004 to nearly 60 percent in 2013.

Such expansion, Phadke cautioned, is not likely to continue in the future. One would think, he mused, we would see further movement away from North America and Europe into Asia. But the global recession was a watershed event that triggered behaviors that may gradually inhibit the movement of manufacturing operations to Asia.

What we see is, by and large, government in all the developed nations has become more protective, he said. They want to protect the manufacturing sector in their country, which develops jobs and is important to them. As a result, they are giving greater incentives to [retain] production in their own countries.

Another important factor he noted is that global manufacturers increasingly are realizing that offshoring is not as effective as it was made out to be in the past.

If you have a longer supply chain, you have to deal with greater problems when any disruptions occur, Phadke said. And if supply is located far from demand, any fluctuation in demand cannot be taken into account in a short time-frame. There is also fear of theft of intellectual property when operating in low-cost markets, he said.

Rising salary levels in China and other countries, along with currency appreciation, could result in cost benefits going away, he said. A number of studies project that in the next two to three years, China will achieve parity with North America as far as labor cost is concerned, he noted. That doesnt mean we see a wholesale movement away from China back to North America and Europe. What it means is this movement of manufacturing to Asia will slow down – and may start to move back in the opposite direction in a few years time.

In Klines view, the key beneficiaries of this shift would likely be countries such as Mexico, which is a low-cost market compared to the United States, but is also close enough to respond to U.S. market needs. For the same reasons, industry may see greater movement from Western Europe into Eastern Europe. Manufacturers want to be close to their demand centers, he said.