Engine Oils Drive Latin American Lubes


Engine Oils Drive Latin American Lubes

While many industries in Latin America seem poised to sprint ahead as soon as regional economies regain stable footing, automotive engine oil trends arent waiting for the starting gun. The global drive for greater fuel economy, extended service life and rapid advancements in engine design are already influencing the regions lubricants market, according to several presenters at the ICIS Pan American Base Oils & Lubricants Conference in Jersey City, New Jersey.

Yair Rodriguez, account manager for Lubrizol Mexico, pointed out that the Latin American automotive market is the second fastest growing market worldwide. With a vehicle fleet of 113 million in 2016, the region is expected to have 127 million vehicles by 2021.

However, the local lubricants market has been flat, with only marginal growth expected to resume in 2019 or 2020, said Marcos Davi Santos, Latin America area sales manager with Chevron Oronite. Of course, this growth is dependent upon the gross domestic product of constituent countries.

Brazil still holds the lead for the regions automotive engine oils market, demanding 360,000 metric tons per year of passenger car motor oil and 223,000 tons of heavy-duty motor oil, Davi Santos estimated, based on a Kline & Co. study performed in 2016 as well as Oronites own analysis. Mexico follows, favoring HDMO at 203,000 tons over PCMO at 108,000 tons. Central America and the Caribbean combined for 73,000 tons of PCMO demand and 74,000 tons of HDMO consumption. Seven other key markets (Venezuela, Argentina, Colombia, Peru, Ecuador, Chile and Bolivia) together need 253,000 tons of PCMO and 209,000 tons of HDMO.

Argentina, Brazil and Mexico represent a combined 75 percent of the Latin American vehicle market. Worldwide, Brazil is the seventh-largest fleet, followed by Mexico at eleventh and Argentina at twenty-first, Rodriguez told attendees at the December gathering.

Shifting Oil Standards

API SN and SM oils, the American Petroleum Institutes most recent passenger car engine oil categories, account for 21 percent of PCMO demand in Latin America, while API SL holds the largest share at 38 percent. API categories SG and SH-both obsolete-along with SJ oils are still sold to 26 percent of the market, and the remainder is 1980s-era API SF quality or worse, said Davi Santos.

Davi Santos expects that API SN and SM, ILSAC GF-5 and General Motors Dexos1 oils will increase market share in the region as vehicle fleets modernize, mainly in Mexico, Brazil and Chile.

HDMO demand in Latin America is dominated by API CI-4 at 46 percent. A sliver (2 percent) is CI-4 Plus, and another 9 percent is CJ-4. API CH-4 accounts for 26 percent, leaving 17 percent of the market for obsolete products such as CG-4 and older category oils. As Rodriguez pointed out during the ICIS conference, API CG-4 is 23-year-old technology and not suitable for todays vehicles, so demand for these lubricants is shrinking.

Particularly in Brazil, the trend toward lighter-viscosity oils and global vehicle platforms continues. Three-cylinder engines are rapidly gaining share in that market and in other countries in the region. These smaller displacement engines with higher power density are changing performance demands on lubricants and additives, stated Davi Santos. Low-speed pre-ignition is also becoming a concern in Brazil, where turbocharged, direct-injection engines are making inroads. Rodriguez expects 40 percent of all vehicles produced in Latin America to be equipped with gasoline direct-injection engines by 2020.

Automakers recommendations are also trending toward lighter viscosity, according to Davi Santos. Among the OEMs active in Brazil, GM recommends SAE 0W-20 in its Chevrolet Onix and Prisma models, as does Honda for its HR-V. Fiat, Ford, Hyundai and Toyota all recommend SAE 5W-20 or 5W-30 for some of their popular models.

Consumer awareness and OEMs common engine platforms definitely place Latin America in the higher performing engine oils market, Davi Santos affirmed.

Regulations Boost Quality

The region continues to tighten emissions restrictions, which also contributes to demand for higher-quality lubricants. Brazil aims to reduce current greenhouse gas emissions by 37 percent by 2025, and by 43 percent by 2030, aligning with the countrys participation in the Paris climate agreement, reported Davi Santos.

Mexico has committed to reducing its emissions by 25 percent by 2030, just over half of which it expects to achieve through reduction of soot from diesel used for transportation and fuel oil used for power generation. Argentina has established the National Cabinet of Climate Change specifically to address its commitments made in Paris, and the cabinet has already passed 50 new regulations. Peru plans to reduce its emissions by 30 percent by 2030, demanding participation from its industry, energy, forestry, agriculture, transportation and waste sectors.

This will lead to greater use of lighter-viscosity, lower SAPS [sulfated ash, phosphorus and sulfur] lubricants, Rodriguez noted.

Market Players

In Brazil, the regions largest country market with lubricant demand of 819,200 tons from January to September of last year, the worst times are already gone, insisted Guilherme de Paula, Americas regional business chief at Petronas Lubricants International. Unemployment is expected to decrease to 11 percent in 2018, down from 13.7 percent last year, while inflation and interest rates take a dive.

The countrys finished lubricants market hit a record high in 2013, jumping to about 1.26 million tons. Demand tumbled to a projected 1.09 million tons through 2017, but is expected to tick up to 1.11 million tons in 2019, said de Paula. About 70 percent of Brazils lube demand is concentrated in the southern and southeastern regions, where the cities of Sao Paulo and Rio de Janeiro are located.

Petronas counts more than 100 companies producing finished lubricants in Brazil, but just nine majors supply 85 percent of the market volume, said de Paula, citing data from Sindicom, a Brazilian trade group. Petrobras leads at 27.1 percent, and Moove (which markets Mobil products) and Ipiranga nearly tie for second place at 17.5 percent and 17.2 percent, respectively. Chevron/Texaco holds 11.6 percent, Petronas has secured 11.2 percent, and Shell 10 percent,while Total (2 percent), Castrol and YPF (1.7 percent each) round out the count.

The automotive sector is an important industry in Brazil, making up about 23 percent of industrial GDP. Despite a drop of 11 percent in production and nearly 20 percent in sales from 2015 to 2016, recovery is expected this year. Sales should nearly catch up to 2015 levels, hitting 2.54 million units, and production will reach 2.84 million units, exceeding 2015 totals.

Over half of Brazils vehicles are passenger cars, and about a quarter are motorcycles. The countrys car parc is even younger than that of the United States, de Paula pointed out, and so presents great opportunity for synthetic engine oils. With access to API Group III base oils made in Malaysia, Petronas Lubricants has been avidly pursuing market share in the country, and climbed to fifth place in the rankings in just two years, he added.

Demand for industrial lubricants in Brazil will inch back up through 2019, de Paula predicted. Last year, its industrial lube consumption dropped to about 365,000 tons from a high of nearly 452,000 tons in 2013. A predicted compound annual growth rate of 0.5 percent will lead to a 374,500-ton market by 2019.

De Paula sees prospects for lubricant companies in the mining, agriculture, infrastructure and logistics, automotive and industrial sectors in the country. Brazil remains an emerging market, ripe with opportunities, he explained, not least because some of the requirements for emerging markets differ from those of saturated markets.

Mexico, the second fastest-growing market in Latin America, is also seeing car counts climb. Sales hit 800,000 cars in 2010, said Lubrizols Rodriguez, and that number is expected to more than double by 2021 to 1.85 million units sold.

Average passenger vehicle age is 15 years, and 54 percent of the fleet requires API SN oils. In the countrys rapidly expanding heavy-duty fleet, 53 percent of vehicles required CI-4 and above in 2017, and 74 percent will be using such oils by 2021, he forecast.

Rodriguez sees users of industrial lubricants in Mexico shifting toward higher quality products, as well.

Base Oils

While demand for API Group II base oils in Latin America will continue to grow as in the rest of the world, Group I oils will remain dominant in key Latin American countries, Davi Santos at Chevron Oronite expects.

The region produces about 2.5 million tons per year of base oils, nearly all of it Group I, according to data Davi Santos presented from IHS Markit. While about 600,000 t/y of API Group II capacity additions are planned, these barrels have been on the horizon for many years and dont seem to be moving any closer.

Forty-five percent of Brazils base oils came from its own refineries in 2016 and 18 percent from rerefineries, leaving 37 percent for imports, said de Paula. But imports are not divided equally among base oil groups: The country imported only 4 percent of the Group I oil it consumed in 2016, but sourced 80 percent of the other types from beyond its borders.

With the trend toward lower-viscosity lubricants, Brazils demand for Group III is on the rise. De Paula expects demand for these oils will increase from just 5 percent of total base stock demand in 2014 to 14 percent by 2030. Group II demand will increase from 14 percent to 27 percent as Group I shrinks from 63 percent to 45 percent.

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