While Europe claims only 4% of the global MCO market, it is a highly varied market where, challenged by Euro zone austerity, many suppliers are struggling to maintain their market share and successfully promote brand loyalty. In contrast to Northern Europe where two-wheelers tend to be used recreationally, in the Southern European market, they are primarily used for transportation. This consequently growing MCO segment deemed the “high-street” market emergence.

Tarle elaborates, “This channel consists of corner or part-time owner-mechanics running their own independent service garages. It’s called ‘high street’ because the initial lubricant purchase is made through the retail segment, either from mass merchandisers or from auto part stores. The ability to provide two-wheeler maintenance and repair services at significantly lower labor costs than franchised dealerships is the major reason for the growth of this segment.”

While the mature European and North American MCO markets do not show dramatic growth in terms of volume, they are expanding in terms of value. The market penetration of synthetic lubricant products is exceptionally high in Europe, accounting for well over 85% of the total lubricants demand. Semi-synthetics dominate with just under 50% of the market followed by full synthetics, while conventional/mineral products are the smallest segment of the market.

Kline’s Lubricants for Motorcycles, Scooters, and Mopeds: Global Market Analysis and Opportunities is a comprehensive assessment covering lubricant consumption for two-wheelers in both the emerging world, as well as developed nations.

– Kline & Company

Key drivers fuelling this growth include enhanced technology and infrastructure, legislative imperatives, and rising crude oil prices. The improving quality and viability of re-refined baseoils coupled with increased and more consistent collection rates due to stronger regulations enforcement are helping the industry assert its largely untapped potential.

Kline’s expert, Tushar Raval, notes that, “The fact that giants of the re-refining market in Western Europe are heavily investing here concretely confirms that the U.S. market offers genuine and vast scope for growth in the re-refining space.”

Despite the encouraging potential, Kline’s Used Oils and Re-refined Lubricants: U.S. Market Analysis and Opportunities also identifies impediments concerning the otherwise strong re-refining business. These primarily include access to used oil and consumer acceptance of re-refined lubricants. To better ensure used oil access and supply, re-refiners are forming alliances or acquiring collectors and subsequently also reinforcing the general consolidation trend within the industry.

Raval elaborates, “The U.S. re-refining industry is growing rapidly, abetted by the improving quality of re-refined baseoils, better collection infrastructure mandated by stronger regulation and enforcement, the successful penetration of Group II and Group III basestocks, and an ever greater economic viability for both the producer and consumer.”

Used Oils and Re-refined Lubricants: U.S. Market Analysis and Opportunities consists of an in-depth analysis of this promising market segment whose potential is now being widely recognized and realized. Please contact us for additional information.

China’s growth in the past 10- to 15 years has been driven by exports and, more recently, infrastructure investment. Exports account for about 20% to 30% of China’s economic growth. Chinese exports have been hit hard by the recession and the Euro-zone crisis. China will soon face a manpower shortage due to demographic factors. As a result in the 12th five-year plan, the government set itself a target of reorienting the economy from manufacturing-, investment-, and exports-driven growth to consumption- and services-driven growth.

In the wake of the global recession, the Chinese government had announced a massive stimulus spending plan, which propped up growth rates. The easy money policy followed in 2009 lead to a housing bubble and stoked inflation. The tight fiscal and monetary policy followed in the first half of 2012 reflected a desire to avoid a repeat of 2009. By cutting off funding, the government essentially shut down new infrastructure projects. The housing market also contracted due to a combination of high interest rates and government restrictions on project funding.

By around middle of 2012, the government–apparently alarmed by the slump—seems to have put this reorientation on hold and looked at investment growth to drive the economy again. Two interest rate cuts were enacted in the second half of 2012, and the reserve requirement for banks was eased. Additionally, infrastructure projects amounting to more than $150 billion were announced. As a result, growth seems to have picked up in the second half of 2012.

China’s infrastructure sector has an outsized impact on the lubricant market as this sector drives not only construction, but also mining, cement, steel, and other metals. The influence of this sector stretches beyond the country due to its large appetite for various commodities. China accounts for about 40% of the global base metal consumption, including about 55% of iron ore and 40% of aluminum and copper. It is reported that the slowing demand for raw materials from China caused BHP Billiton, a major mining company, to delay many of its investment projects. The impact of China’s infrastructure sector can be felt as far as Australia, Brazil, and Chile for commodities, and Germany and Japan for manufactured goods.

While the impact on other markets is unknown, the impact on the Chinese market has been severe. Based on a recently completed study, Kline estimates that the commercial and industrial lubricant consumption in China experienced double-digit declines in the first half of the year. There has been some recovery in the second half, particularly the last quarter. However, it is not clear if this was sufficient enough to compensate for the contraction in the first half. This is borne out by the lackluster demand for diesel in China, which declined in the first half of 2012 and was flat in the third quarter. Normally, China starts diesel imports by the end of the third quarter to meet peak demand from agriculture and power generation. Instead, this year, China continued to export well into the fourth quarter.

The project of reorienting China to consumption lead growth  will have to resume soon because the country cannot continue on the current path indefinitely. The economic value of infrastructure investments will start to reduce as more money is poured into this sector. Eventually, projects with poor financial returns will be taken up as good projects are no longer available. The coming manpower shortage and rising wages make export driven growth a challenge. The Chinese economy will have to reorient to consumption-driven growth. As it does, the impact will be felt in many places. We are heading into interesting times.

Written by Milind Phadke, Director of Energy

This free webinar will help senior executives, strategic planners, competitive intelligence trackers, marketers, sales, and other professionals in the finished lubricants business better assess the markets for their products and understand their competition on a global basis.
It will also be of interest to basestock and additive suppliers who provide raw materials to this industry.

Please register by Tuesday November 13, 2012.

REGISTER HERE

]]> http://blogs.klinegroup.com/2012/11/07/webinar-global-lubricants-market-analysis-and-assessment/feed/ 0 Kline Blogs webinar-picture2 http://blogs.klinegroup.com/2012/11/02/join-us-at-the-icis-african-base-oils-lubricants/ http://blogs.klinegroup.com/2012/11/02/join-us-at-the-icis-african-base-oils-lubricants/#comments Fri, 02 Nov 2012 14:57:58 +0000 Kline Blogs http://blogs.klinegroup.com/?p=2593 ]]> The ICIS African Base Oils & Lubricants is designed specifically to enable international base oils and lubricants professionals to develop a fuller picture of pan-African markets, the conference will provide an in-depth view of the trading landscape on the continent.

Demand for base oils in Africa is on the rise.  Imports to Nigeria alone are estimated to be as high as 720,000 tonnes a year.  With this and other domestic markets expected to grow in years to come, the eyes of savvy exporters are trained on the African continent.

Kline’s George Morvey will be presenting Finished Lubes and Base Stocks: The Global Picture and Africa in Context on Wednesday, November 7.

Register HERE.

Kline’s Geeta Agashe will present The Dynamics of the Global Lubricants Market on Wednesday, October 10.

Register HERE.

With another looming recession and a possible break-up of the Eurozone impacting the European base oil and lubricant industry, Geeta looked at the future prospects for this market. In her presentation on “European Debt Crisis, Recession & Eurozone Break-Up – and the Impact on the European Lubricant Market” she provided an analysis of internal and external forces shaping the present and the future of the oil and lubricant environment in Europe. The message is: agile, speedy, consistent, and flexible lubricant companies with a global reach will thrive!

Sharbel looked at the local market in his “Opportunities in Lubricants: Czech Market Analysis”, with an overview and outlook on the local lubricant sector, as well as identifying the evolving requirements of the Czech lubricant market.

Click to view slideshow.

Contact us for more information.

Register here.

As a logistical consequence of China’s vast exporting, manufacturing facilities tended to be coastal; however, in an effort to offset declining exports, China is increasingly shifting to a domestic consumption-driven economy and investing significant resources in developing infrastructure within the country’s interior thus encouraging companies to expand and establish a presence to service what were until recently low priority domestic needs. This realignment affords both opportunities and challenges. Backed by government incentives, the hitherto underdeveloped interior of the country is emerging as a new and hungry market. Astute marketers therefore need to employ dual strategies: one for the traditional and more sophisticated developed regions of China, and another for the upcoming interior regions.

Kline’s analysis also finds that China’s state-owned players dominate the market, with PetroChina remaining China’s leading lubricant supplier, claiming approximately 23% of the market mainly due to its strength in the industrial sector, while Sinopec claims a further 20% market share through its dominance of the automotive sector. These and other domestic companies, with their well-established reach and low price points, hold a distinct advantage in servicing the burgeoning lubricant demand and capturing market share. This is reflected by Shell, the leading foreign supplier in China, securing a relatively modest estimated 7% market share. Kline estimates that the combined sales of lubricants by foreign suppliers amount to around 27% of the total volume.

However, great opportunities exist for foreign lubricant suppliers as global companies increase their investments in China and are likely to choose the same or other trusted Western oil suppliers to fulfill their lubricant needs.

With the expectation that the car population in China will grow on average between 18% to 22% per year between 2010 and 2015, and given that most of the large automotive producers in China are multinational or joint venture companies with global sourcing as a common strategy, multinational lubricant producers can fare well by fostering and emphasizing proven and standardized product performance and value-added relationships. Additionally, with the absence of locally produced ATF and the growing popularity of automatic transmissions, there are largely uncontested opportunities for multinational lubricant suppliers to strengthen their position in the transmission oil market.

Due to increased investments in large power generation projects in recent years and further projects anticipated, more imported power generation equipment and other large electrical equipment will be introduced. “It is expected that this will lead to a rapid growth in demand for high-end lubricants in this market segment, with equipment manufacturers stipulating standardized, tested, and trusted fluids,” commented Geeta Agashe, vice president of Kline’s Energy Practice. “This is an opportunity for global majors, such as ExxonMobil, Shell, and BP, who have a strong relationship with the OEMs of imported equipment.”

China’s shifting economy offers considerable opportunities, offering value-added services, specialty, proven, or trusted fluids, and capitalizing upon relationships with OEMs of imported equipment and parent companies, will significantly benefit foreign oil suppliers.

Opportunities in Lubricants 2011: China Market Analysis is a comprehensive analysis of the Chinese lubricant market focusing on market size and growth, quality evolution, key trends, developments, challenges, business opportunities, and threats.

What has been the impact on the global lubricants industry? As per Kline & Company’s estimates, global lubricant consumption peaked in 2007 at about 39.8 million tonnes. Consumption declined by 3.5% in 2008 to 38.4 million tonnes and by a staggering 9% in 2009 to reach 35 million tonnes. Consumption grew by 7% in 2010 to reach 37.4 million tonnes. In 2011, we estimate that the industry grew by 2% to reach 38.2 million tonnes. The economic rollercoaster ride of the past three years has generated a debate on the nature of lubricant demand and its growth in context of economic growth. Does lubricant demand growth track GDP growth rate? Can we define a relation between GDP growth and lubricant growth? Has the lubricant market grown at all in the last 10 to 15 years? Let’s try to lay out our view on these questions.

Does lubricant demand growth track GDP growth rate?
Lubricants permeate every aspect of our life and are needed wherever machines are used. For our convenience, we break down the industry in terms of consumer segment which covers all privately owned cars, SUVs, motorcycles and small engines; commercial segment which covers all trucks, buses, tractors, and other commercial vehicles; and industrial segment which covers lubricants used in machinery in all industries and also includes metalworking fluids used in variety of metal processing industries. If we take a broad time horizon, then lubricant consumption growth should indeed track GDP growth rate given its wide usage. However, there are two caveats. First, not all sectors of the economy use lubricants to the same extent so lubricant demand growth is dependent on which part of the economy is growing. GDP is divided into manufacturing, services, and agriculture. Manufacturing GDP is most lubricant intensive, and services are the least intensive. In most affluent economies (Germany is an exception), GDP growth is primarily driven by growth in services hence the impact on lubricant demand growth is weak. Growth in manufacturing intensive economies will have a strong relation with lubricant growth. The second factor to consider is the degree of mechanization in the manufacturing sector. Many growth economies may have a large manufacturing sector, but their manufacturing is labour–intensive, using less mechanical power and hence less lubricants. As such economies grow, lubricant consumption would show some growth, but this growth would have been much stronger if it were to occur in an economy which is highly mechanized. Similarly, if growth comers from the Agricultural segment it is important to understand if agriculture is primarily mechanized or labour intensive. In our view lubricant demand growth is driven by GDP growth. However, the relation between the two is nebulous and changing based on where economic growth occurs.

Can we define a relation between GDP growth and lubricant growth?
To be able to quantify the relation between GDP growth rate and lubricant demand growth rate, we need a repeatable, consistent measure of “actual” global lubricant demand, as opposed to estimates. Unfortunately, lack of common definitions and spotty reporting by marketers means that we do not have consistent measure of actual lubricant demand. Data is indeed collected by various national associations but the data is strictly not comparable year to year as the list of participants keeps on changing. Also, differences in what is included make comparison between data from two sources difficult. Is process oil included? What about marine oils? How do re-refined oils get counted? Unless we have a robust, repeatable measure of global lubricant consumption covering all market segments (top tier to bottom tier), the correlation with GDP growth rate is not representative of the total market.

Even if we can’t quantify lubricant demand, we can quantify growth. It’s how much more was sold this year compared to the year before. We can therefore track lubricant demand growth with GDP growth and determine if there is a relation, right?
The answer is: maybe. The lubricants industry is very vast in terms of products, market segments, supply chain position, and geography. The growth rate experienced by industry constituents is based on their position. Niches within the total market may have high or low growth rate because of some underlying trend which drowns out the “real” demand growth. For example, an installer may experience a better than average growth rate if there is a significant shift from DIY demand to DIFM demand. Similarly, a Group III supplier may experience strong growth far in excess of the industry growth due to shifts in blending approaches. An additive company may experience a sudden spurt in demand related to the introduction of a new quality level. These market participants would experience some slowing down if the total market declined, but they would not be able make out if this was due to the slowing down of the market trend or slowing of the overall growth.

Due to supply chain effects, growth rates can be all over the place during times of economic turbulence. When growing at a steady pace, the lubricants industry is like a taut railway train with all chugging along at more or less the same pace. When economic growth stalls the impact on different supply chain levels is different. We did see in the latter half of 2008 and early 2009 massive destocking by lubricant marketers. This caused a more rapid contraction in demand for baseoil and additives suppliers than would have been justified by the contraction in the true demand. Similarly during the upswing in second half of 2010, these suppliers benefited from restocking. As a result, during this turbulent period, it would have been difficult for basestock and additive suppliers to relate their business growth to the GDP growth.

Finally, even if there is no special trend in play and no economic turbulence, growth of individual marketers will be higher or lower than the total market depending on whether it is gaining or losing market share. The point is that growth rates of individual market participants are unreliable indicators of overall market growth. The growth rate of the individual market participant may have been influenced by some major market trend unrelated to overall demand. It could also be the case that the company in question is losing or gaining market share.

Has the lubricant market grown at all in the last 10 to 15 years?
We cannot hold both views that lubricant demand tracks GDP growth and that lubricant consumption today is at the same level as it was 10 years ago, for the real GDP has grown in this period.

Between 2000 and 2010, cumulative global passenger car and commercial vehicle production accounted for nearly 718 million new units¹. Even allowing for vehicle scrappage, there has been a big increase in the global vehicle population. Between 2001 and 2011, steel production grew by 408 million tons². Other industrial end-use industries saw similar growth in production levels. Did lubricant consumption remain flat in face of such massive growth in vehicles population and industrial production? To be sure there has been a dampening of lubricant demand due to longer lasting lubricants, lower losses in use due to better equipment design, smaller sump sizes, better housekeeping, better re-refining, and other such factors. However, they have not been enough to cancel out the growth in the underlying demand for lubricants. Innovations such as longer drain engine oils have not spread out to Asia where the cost of insufficient lubrication far outweighs the cost of the lubricant. In our view, global lubricant consumption is likely to exhibit growth due to increasing vehicle population, industrial production and increased mechanization in growth economies. This growth rate will be lower than what you would expect from the build-up of vehicle population and growth industrial production, but still a long way from a flat market.

Finally, a word on our methodology.
Kline measures lubricant demand by a combination of lubricant usage norms (covering crankcase size, drain intervals, and top up demand where applicable) applied to passenger car, motorcycle, and commercial vehicle populations; lubricant usage intensity in different end-use industries; and estimates of sales by major marketers and their market shares. Usage norms in automotive segment and usage intensity in industrial segment are developed on the basis of end-user and installer interviews. Projections are based on growth in end-user segment and any shifts in the usage norms.

What do you think are the important parameters to be considered for estimating lubricant demand? What factors should we look at for projecting demand growth? Please provide your feedback at vera.sandarova@klinegroup.com. We would love to hear from you.

In closing, we wish you a healthy, happy, and profitable 2012!

By Milind Phadke, Industry Manager, Energy

Milind.Phadke@klinegroup.com