Caltex branded lubricants have been manufactured and distributed around the world for over 80 years. Throughout the decades its focus has been on providing superior products in tune with the advancing engine technologies. “We are capable of meeting the specific requirements of modern engines and current environmental norms, and are well positioned for the future,” Adriaan De Kok, Area Business Manager for the Gulf and Middle East at Caltex’s parent company, Chevron Lubricants, told T Murrali of AutoParts Asia in an exclusive interview. The Excerpts:-
Q: How the lubricant industry has been evolving and how does Caltex manage the emerging situation?
A: Environmental regulations are continuously tightening and engine technology is advancing. Lubricanting engine oils have to advance with engine technology as changes in engine design call for engine oil with lighter viscosity and yet longer durability. With the global drive to reduce carbon footprint, all engine manufacturers are focusing on lower emissions and longer drain intervals; a lot of these things are impacting business. We are at the forefront of designing lubricants that extend durability and enable the vehicles to stay on the road longer, improve fuel economy and performance as technologies advance. That is why we use premium quality base oils and highest performing additives. We marry these in a unique formulation to ensure that all these elements are met.
The reality is that many of our competitors, especially those using lesser quality raw material, are not capable of meeting the specific requirements of modern engines and current environmental norms.
We are well positioned for the future to keep on growing and converting customers to new products. So growth rates are in excess of targets in our business at Chevron in the Middle East and all across the world because we are a premium quality supplier that can deliver products which give value to consumers.
Q: But there is always a trade-off in all these. How do you manage that?
A: The trade-offs are difficult to manage because there is extreme price sensitivity in this market. So the trade-off is that high quality components that you put into a product clearly drives up the cost; the more durable you make your products with more performance features to protect the piece of equipment it works in, the more the cost you add to it. The more the quality controls in your manufacturing system, the higher the cost. That is what happens when you have high quality manufacturing processes delivering high quality products.
The trade-off is that we have a long history of showing customers how durability can be converted to dollars. A simple example – mono-grade oils versus multi-grade oils. It is a known fact that multi-grade oil is consumed 30 percent less but costs 30 percent more than a mono-grade.
Q: What’s the difference between mono-grade and multi-grade?
A: Mono-grade oils are only capable of handling warmer ambient temperatures but multi-grade oils have a wider operating temperature range, which ensures that the engine oil viscosity is well controlled under different ambient conditions.
Multi-grade oils are more expensive to manufacture because you add viscosity improvers into the product. Today, in the Gulf, on diesel technology, the biggest market is for mono-grade. Though the multi-grade saves you 30 percent oil usage, customers go for the mono-grade as they want to pay less. Multi-grade costs 30 percent more but lasts 30 percent longer than mono-grade, so educating consumers and every-day users is the biggest challenge for us.
Q: Will it help consumers increase the uptime of vehicles?
A: Exactly, not only is there reduced consumption of oil but also increased uptime and less downtime in the workshops.
This seems paradoxical for oil companies – why would they want to sell less oil? But, ultimately, the market for lubricants keeps on growing and that growth is sufficient for us to grow in healthy measures in spite of increasing drain intervals on equipment.
The growth of lubricant demand still outstrips the reduction as a result of efficiency improvements. So there is sufficient growth for us to get there and the value proposition we give customers (trade-off between paying more and getting additional benefits) is significant enough for us to attract them.
Q: What do you feel – revenue will grow for a constant volume or dipping volume? The consumption patterns are reduced for longer duration oils though the value is a bit more; so, overall, for a fixed volume will your revenue come down?
A: Yes, if you keep on selling the same products. But if you start selling more synthetic products with the ability to extend the drain, your revenue will increase. If you sell the same volume of synthetic products as compared to mineral you will get higher revenue with longer drain intervals, but the volume will be spread over a longer time.
Q: In that case, do you think the need to enhance manufacturing footprint will come down?
A: Yes, that is why there is a glut of manufacturing capacity in the Middle East. Manufacturers are seeking more tenants for their facilities. Now it is very easy to go out into the market there and find a facility to manufacture your products. Of course, it is difficult to find one with the right quality standards, processes, procedures and safety standards but there is certainly a lot of capacity available in the Gulf for manufacturers.
Q: But how is it globally?
A: Globally also, manufacturing facility is in oversupply and delivers very low ROI. It is much better to manufacture something else than lubricants.
Q: So the evolving trend favours existing companies by not spending to enhance manufacturing capacities?
A: Yes, though there are major announcements by certain quality producers. Now the manufacturers are able to attract new entities to manufacture in their facilities.
Q: Is Caltex into all type of lubricants?
A: Yes, we span the entire range – mineral and semi-synthetic blends all the way to fully synthetic oils and to chemicals like coolants and fuel system treatments like Techron, that is available worldwide.
Q: The mineral segment seems to be growing faster as it costs less?
A: Yes, in absolute volumes but in terms of growth rates the synthetics and semi-synthetics have higher growth rates than mineral oils, according to K-LINE which is the industry monitor.
Q: Why is it so?
A: Because of the new vehicles. Most of the new vehicles require lubricants that meet very high performance standards which cannot be met by mineral-based lubricants. For the modern vehicles, both diesel and petrol, the operating conditions are such that mineral oils cannot cope with them. Mineral-based oils oxidise prematurely and do not disperse the soot properly. Therefore you do need synthetic lubricants.
Q: Going forward, do you see synthetic coming into play in a big way? What are the driving forces?
A: Yes, absolutely. As mentioned, the driving force will be new vehicles. UAE is currently stopping the sale of vehicles that are 10 years or older. Today, every car on the road requires very high quality lubricants. The reality is the lack of understanding by customers who continue to put mineral products into some of their modern vehicles, when their vehicle actually demands or needs a synthetic type of lubricant. OEMs are increasingly recommending synthetic products in the manuals of their latest modern engines. So the growth rates of semi and synthetic products are much higher although a very high percentage of the overall market today, is still mineral, mono-grade oils. It is gradually moving. By 2025 there will be a very different profile of products.
Q: Any particular issue that is bothering this segment?
A: Yes, in emission standards. Cleaning up the environment is really important for all of us and lubricants can help do that. The extension of drain intervals also is important as it reduces the generation of used oil that pollutes the environment. Regulations need to be tighter and we have to make sure our products comply with them. With our products we protect the environment, fuel economy, and your investment – that is our main aim. Our tag line is ‘Protect what Matters,’ so that the overall product package can be delivered successfully.