Capital investments are flowing fast and thick from Petronas Lubricants International, the downstream lubricants business of Malaysias national oil company. More than $300 million is going to enlarge a blending plant in China. A $50 million blending plant in India is due for completion this year. And in Italy, the company is building Europes largest engine oil technology center, at a cost of E50 million.
With more than 30 marketing offices in 23 countries, 11 blending plants worldwide and capacity to make 613,600 metric tons a year of products, PLI is already a major player on the finished lubricants stage. It had sales volume in 2014 of 739 million liters, revenues of $1.66 billion, and ranks number 12 on Kline & Co.s list of the worlds leading lubricant companies.
Thats a far cry from 1981, when Petronas began selling imported lubricant products at its local service stations. Six years later, it started using third-party facilities to blend and produce its own brands locally. When its own blending plant in Melaka, Malaysia, was completed in 1994, the company started formulation development and manufacturing. Its international debut came the next year in Cambodia, and soon widened to neighboring Asian countries like Thailand, Myanmar, Vietnam, Hong Kong and the Philippines.
After that came its boldest move yet to mount a global lubricant business: In 2008, the chance to purchase [Italys] FL Selenia came, and we bought it. It gave us a decent footprint and was already big in Europe, with a decent size in Latin America, Amir Hamzah Azizan, chief executive officer of Petronas Lubricants International, told LubesnGreases in an exclusive interview in Singapore. Amir had been recruited to PLI in 1999 to lead its overseas expansion plans – but was not new to the oil industry; he had landed his first job as a finance economist at Shell.
With FL Selenia tucked into its portfolio, Petronas lubricant business was consolidated under the new, wholly owned subsidiary Petronas Lubricants International. By that time, the company says, PLI was already a top 20 lubricant player in the world, with estimated sales of 650 million liters a year.
We bought Selenia to strengthen our position, said Amir. But after the Lehman Brothers stock market crisis, things did not quite work out. Sometimes you can plan as best you can, but there was a turning point of the global economy and things went really slow, he related. It was really tough. There were various issues to sort out, and I had to change the DNA of PLI from a Malaysian entity to an international one.
You need a connected entity to develop a global brand, be clear and make use of your competitive advantage, and determine where the growth region is, he explained.
While others were attracted to Asias strong growth, PLI pushed ahead in Europe with Selenia. We have been seeing 8 to 12 percent growth in Europe, and theres still plenty of space to grow. We are only doing original equipment manufacturers, he said.
Selenia originally was established as automaker Fiats lubricant division, manufacturing factory-fill lubricants for all of its vehicles. As part of the approximately E1 billion (about $1.4 billion) acquisition, PLI inherited Selenias fluid and lubricants technology, blending plants in Europe and South America, and original equipment manufacturer relationships not only in Italy but also in Brazil, France, the United Kingdom, Germany, Turkey, Portugal, Scandinavia, Austria and Poland.
We have a fantastic position in Europe, said Amir. PLI says its lubricants market share in Italy and Brazil is about 18 percent and 9 percent, respectively. Recently, the company also renewed its 2011 contract with BMW for the automakers first-fill business in Austria.
PLI has confidence in the European market, and is investing E50 million to build a 80,000 square meter research and development center in Turin, Italy. It will be Europes largest engine oil R&D center when completed in 2017. The new center will be equipped with multiple cells for testing lubricants in various engines and under different conditions; fuel economy and emissions test stands; a state-of-the-art Horiba emissions analyzer; and more.
When completed, the facility will be the companys global technology center, and other PLI satellite research and technology centers around the world will be linked to it, said Eric Holthusen, chief operating officer. These satellite research and technology centers are located in the U.S., focusing on agricultural lubricants; South Africa for industrial and mining lubricants; and its latest addition in Nanning, China – which opened this year – for diesel engine lubricants.
In the meantime, the research center in Brazil, focusing on industrial and commercial road transport lubricants, is expected to be upgraded by next year to meet the capabilities and needs of its increasing [product] portfolio and to cater to the more top-of-the-line industrial lubricants, said Holthusen.
The company expects an upward trend in demand for higher quality lubricants, Holthusen said. We can see more governments, OEM manufacturers and others adhering to stricter emission standards with countries and businesses adopting approaches that will lead to lower emissions and cleaner technologies.
[With this in mind,] we intensified our approach in the development of higher quality lubricants to help OEMs meet carbon dioxide regulations, contribute to greater engine durability, and fuel economy improvement with the recent introduction of Petronas Syntium with CoolTech, Petronas flagship lubricant brand, he added. This new engine oil formulation claims to significantly exceed the wear protection, oxidation resistance and piston deposit control requirements of current ACEA, ILSAC and API specifications.
PLI relies strongly on OEM relationships, and its business divides roughly into 40 percent OEMs, 40 percent consumer branded products and 20 percent industrial lubricants. It has technical collaborations with OEMs like BMW, Lotus and Case-New Holland, which have resulted in more than 6,000 OEM product approvals. The company is also the title sponsor and technical partner to the highly-visible Mercedes AMG Petronas Formula 1 racing team, where it provides technical expertise along with engine oils and transmission fluids.
For any company to succeed today, the tangible believability that resonates with the consumer emotionally will be key, said Holthusen. Consumers want to see to believe. Therefore, the brands we are creating…are not just limited to what you see on our product packaging, but the believability and quality assurance that comes from our involvement and our successes in Formula 1, for example. We are not only the supplier of automotive functional fluids to the team, but we deploy PLIs strongest technical experts, who form part of the Mercedes team.
Going on he added, What we learn from the tracks, we translate to our finished products for road-going vehicles. People see the team and OEM partnerships, and they believe we are serious about technology as the foundation of our product developments.
Other partnerships provided the platform for a new SAE 5W-20 fuel economy lubricant with BMW in Austria, and high performance brake fluids with Ferrari and Maserati. Additionally, late last year, PLI and Italian truck manufacturer Iveco commercialized the industrys first SAE 0W-20 heavy-duty engine oil, a fuel-saving viscosity grade targeted to Ivecos truck fleet customers. According to Holthusen, his company plans to continue expanding into the heavy-duty diesel segment.
To move up in the ranks of global lubricant companies, PLI will also be focusing on Asia. Asia is a big engine for growth, and we want to work more on the Asian space, like China and India, said Amir.
Covering Chinas large geographical area required two strongholds in the country, he pointed out. One in Shandong, northwest China, where a blending plant expansion is expected to be operational by 2017. When completed, it will have a capacity of about 150,000 metric tons per year and will be the companys biggest blending plant, valued at around 2 billion Chinese yuan ($322 million). The plants current size is 40,000 metric tons, giving us a decent footprint in northwest China, noted Amir.
PLI also has a two-year-old joint venture with China-based diesel engine manufacturer Yuchai Group in Beihai, southern China, which established an R&D center in Guangxi provinces Nanning Science and Technology Industrial Park in March this year.
Yuchai needed the technology to help them develop lubricants as synthetics become more important, and help them with the supply chain and marketing capability. They will provide the volume growth and brand positioning, said Amir. We have a win-win situation and strong trust. Last year, Yuchai recorded sales of 160 million liters of lubricants compared to half a million liters nine years ago, he said. Still, he added, we use a cautious approach in China, and its a grounded business.
A different approach is being used for India. We like India, and it is important to position ourselves for the medium and long term, said Amir. Business in India is mature enough, he explained, and now we want to invest in the Indian market to make our position there better. So a year and a half ago the company acquired land in the Patalganga industrial area near Mumbai, and now is building a $50 million, 60,000 t/y blending plant, planned for completion by year end.
With worldwide sales volume having grown 11 percent a year on average from 2010 to 2014, some believe that PLIs next move will be an initial public offering and stock exchange listing. Asked to comment, Amir replied, Our plans to be listed today, in five years, or sooner would really depend on how we as a company fare under the current lubricants industry climate, the business environment and general economic outlook.
Yield of business is good. We are a technology-led company and want to be a top 10 largest lubricant company in another five years, he added.