Finally, lubricant demand has crawled back up to where it was a decade ago. The global economic crisis had knocked the industry from its crowning height of 36 million metric tons in 2007 to a humble 32 million tons in 2009, Fuchs Petrolub SE found. From that valley, consumption inched up each year to surmount pre-crisis levels in 2017. But dont look up and rejoice from atop this new peak just yet, a company executive warned. Instead, consider how far demand stands to fall given several new disruptors lurking on the other side of the mountain.
Digitalization, for one, can be an opportunity or be disruptive to lubricant manufacturers, Fuchs Apu Gosalia told the ICIS World Base Oils and Lubricants Conference in London. The vice president of sustainability and global competitive intelligence first made an important distinction between two similar words. Digitization, he noted, is the inevitable and almost universal phenomenon of transitioning analog and manual record-taking to digital, automated formats. Digitalization, however, is the infusion of technology that uses such data to improve, replace or transform processes, generate revenue or make business practices more effective. It sounds like a good thing, of course. But its effects can be malevolent, depending on ones perspective.
While some businesses take the lead in incorporating digital tech on their own behalf, Gosalia contends that lube manufacturers often arent that enterprising. They are digitizing rather than digitalizing. Alternatively, there are swarms of tech firms armed and ready with technology that could benefit blenders. But if they are not approached as potential partners, many could act with their own interests in mind, capitalizing on an opportunity and effectively nudging their way into the lubes industry, Gosalia pointed out at the February event.
Established firms and start-ups of all sizes are capable of collecting, analyzing and making use of raw data. Digitalization technology providers could use all sorts of statistics and simulation methods to highlight opportunities and pinpoint inefficiencies in lubricant usage, raw material inputs and manufacturing equipment processes, he explained. They offer…condition monitoring, explorative statistics, data mining and big data-all of which can be used for system modelling in chemical, tribological, logistic and manufacturing areas.
The rub? Those types of third parties often deliberately disrupt traditional enterprises. The potential threat to lubricant marketers is that these start-ups may determine the lubricant characteristics that are needed and then identify the best source for such performance [parameters], Gosalia continued. They offer these sophisticated tools directly to the customer.
Instead of a two-way street of communication between blender and client, the third-party unit uses big data to wedge in as the arbiter of information in the formulation process, telling clients what specifications are best for them and relaying users requirements back to blenders, thus rendering the lube supplier little more than a toll manufacturer.
The trend is particularly evident in China, the worlds largest lubricant market, but its a real threat worldwide, the Mannheim, Germany-based industry veteran emphasized. We know at least 15 start-ups that employ between five and 700 staff that apply whatever statistics and simulation methods you can think about to dig into this relation between lubricant manufacturer and customer.
Embracing digitalization in the design process is crucial, Gosalia said. Its important to establish a stop-gap between a lube blender and its customers by incorporating a support platform to wield the data that disruptive technology providers could otherwise plunder. For example, Fuchs recently acquired Dallas-based wireless sensor technology company Fluid Vision Technologies so it can offer automated process fluid condition monitoring directly to its customers.
Instead of empirical evidence, statistical infrastructure now drives Fuchs product development decisions, he said. Simulations optimize manufacturing processes and production facilities. Historical data predicts future sales. E-commerce tools drive marketing. Distribution networks and individual deliveries are digitally tracked. The life of the fluids in use is then monitored to offer a window into the operating environment and the oils performance, he continued, thus making the lubricant talk. Data collection throughout the whole value chain affects each prior step, extending the exchange between customers and their lubricant providers and giving way to new opportunities to add value for both parties.
While suppliers cant afford to ignore digitalization when it comes to analyzing the finer points of their own operations, Gosalia continued, they also cant be duped by the big picture.
Yes, its easy to look at the numbers gleaned by Fuchs and other observers and assume the market is back to status quo. Yet despite last years 36.1 million tons of total lube demand (not including marine oils) mirroring the 36 million tons consumed in 2007, the market is vastly different than it was 10 years ago. If you dont drill down into specific regions and segments, you miss out on opportunities, he added.
With nearly no difference in lube consumption in global terms comparing 2007 with 2017, one could think that not much happened over a 10-year timeframe, he said. But in fact it did, when taking a look at the underlying regional lube market dynamics in terms of quantity and quality.
For instance, dont assume that signs of a full recovery in the lubes market means that robust markets such as the Americas and Europe regained the same thirst they had for lubes in 2007. The worlds second-largest lube consuming country, the United States, demands 1 million tons less today than the 7 million tons it gulped in 07. Echoes of that trend are seen in all but one of the countries outside Asia on Fuchs list of the top 20 lubricant consuming countries in 2017.
Russia, the largest player outside of the U.S. and Asia, saw its demand slide from about 1.6 million tons to around 1.2 million. Brazil saw a similar drop, from about 1.5 million tons to 1 million tons. Germany, the United Kingdom, Canada, France, Spain and Italy are all down marginally as well, with the first starting at around 1 million tons in 2017 and the rest descending in order through Italy, which stands at around half that amount.
Even from one year to the next, the numbers paint a stark picture, Gosalia went on. North Americas demand was flat from 2016 to 2017. Demand in Western Europe rose 1.5 percent, but Eastern Europe increased just half a percentage point while the Middle East got dinged by half a point and Africa fell 3 percent. Thus, suppliers are wrong to rely on demand growth in these big economies.
Latin Americas data requires a more meticulous look as well, he argued. Argentina, Chile, Mexico and Colombia show growth, but Latin Americas overall demand was down by 2 percent last year. One country is responsible, according to Gosalia. Venezuelas hyperinflation and economic war ransacked consumption of lubricants. Mexico proved to be the regions only positive, having inched up from 2007 volumes.
So while they are still heavy hitters, breakdown of regional demand shows that the Americas and Europe represent a much smaller portion of the worlds lubricants volume than they did before the crisis, contracting to 27 percent and 19 percent from 32 percent and 23 percent, respectively.
Meanwhile, the Middle East and Africa have both perked up in the past decade, despite divots in demand during the past year.
Asia is the clear winner, claiming a commanding 43 percent of demand, up from a budding 35 percent in 2007. China has skyrocketed from around 4.5 million tons then to over 7 million tons today, surpassing the U.S.s 2007 zenith. India is up by several hundred thousand tons to about 1.6 million, though this is a lower figure than what many other industry players estimate. South Korea and Thailand have grown a bit, as well.
But drilling down, it becomes clear that not all countries in Asia tell the same story. Japan, while still the fourth-largest market, slid by about a half million tons. Indonesia and Australia sagged from 2007 levels as well.
Misinterpreting this data can spoil opportunities, Gosalia explained, and analysis of regional idiosyncrasies shows that numbers alone arent enough. Asias growth is a result of growing industrialization and motorization and consequently higher consumption, Gosalia added. The mature markets of Western Europe and North America are experiencing a continuous move to higher quality lubricants, which results in extended oil change intervals and consequently lower demand in a year.
And its possible to dive deeper. Looking at how much individuals from each of the top 20 countries consume on average proves interesting as well, for example. The U.S., as the second-largest single market, also has the second-highest per capita consumption, where each inhabitant demanded close to 19 kilograms of lubricants in 2017. But China, the largest market, has the second-lowest per capita consumption, with only 5 kilograms of lubes consumed per person.
Declines from Decarbonization
Individuals in China may consume even less as time goes on, considering another global trend that the country is pioneering, according to Gosalias colleague Lutz Lindemann.
E-mobility is leading the way toward reducing carbon use, and China is on the forefront of that trend, Fuchs chief technology officer told attendees of the 21st International Colloquium Tribology in Ostfildern, Germany.
E-mobility is positive in Asia-Pacific, he added. China, for example, aims to have 10 percent of new cars be electric by 2019, and 12 percent from 2020 and beyond.Because e-cars have different lubrication needs, the effect on lubricants is difficult to gauge, Lindemann acknowledged. There are 2,000 moving parts in an internal combustion engine, but only 200 parts in the electric vehicle. Those fewer parts will not need as much industrial lubricant or metalworking fluid to manufacture, either.
As a result, Fuchs Petrolub expects factory-fill engine oil and gear oil demand to shrink significantly. On the plus side, the company anticipates increasing need for lubricating greases, which will have to meet stringent specifications for friction, speed, noise and yellow metal compatibility. Another winning segment could be battery-cooling fluids and lubricants for cooling other parts.
While he was on the subject of disruptors to the industry during his January presentation, Lindemann emphasized another trend suppliers would be remiss to ignore. Additive manufacturing, a synonym for 3-D printing,will bring real disruption, he said. It eats the existing technology, just cannibalizes it.
The aerospace industry already employs 3-D printing to create large, complicated parts such as turbine blades, using zero metalworking fluid. The technology soon will move into car manufacturing, medical devices and steel fabrication, further eroding demand for the metalworking fluids, forming oils and corrosion preventives consumed by traditional metal shaping processes.
Summarizing whats at stake for suppliers in 2018, Lindemann noted that 2017 demand was estimated as stable versus 2016. Yet both Fuchs officials were eager to emphasize that the current climate could change. Lindemann pointed out that Fuchs perceives some slight indications of overheating in the global economy-not a totally healthy sign.
With disruptors, economic factors and opportunities for growth all taken into account, the balance is still negative, ensuring that suppliers will need to become increasingly resourceful to remain competitive. The net effect worldwide will be a decrease of 900,000 tons in lubricant demand over the next 10 years. At the end of the day, it wont kill our world, Lindemann said-but lubricant companies will have to adapt to the new realities. z
Lisa Tocci contributed to this report.