Lubricant is a substance that is capable of reducing friction by making two moving surfaces smooth or slippery. It plays a vital role in optimising the conversion of energy sources to mechanical operations. Lubricants are used in different applications ranging from automotives to multitudes of industries and equipment.
Lubricants are mainly of four types: Mineral oil, synthetic, bio-based, and greases. Mineral oil lubricant has the major market share as it costs less than other types. It is easily available and is most widely used.
Synthetic and bio-based lubricants are becoming popular owing to the strong environmental regulations to contain emissions and improve efficiency, the consumer preference to go green, and the possibility of longer oil change intervals. Lubricants are developed according to the changing needs of the industry. Manufacturers and blenders follow the engine requirements. Transportation, industrial machinery and equipment application segments are the top consumers of lubricants. The increasing number of on-road vehicles and the large-scale industrialisation in Asia-Pacific, Middle East and Africa regions increase the demand for lubricants. It is estimated that the lubricant segment will have a cumulative annual growth (CAG) of 2.5 to three percent up to 2025, irrespective of the rise and fall of the automotive industry in the market place.
In this report we present the market dynamics of lubricants, the increasing preference for synthetic lubricants, the role of OEMs and aftermarket, and the regions of demand growth from the perspective of some of the leading players in the lubricants manufacturing and marketing segments.
Lubricants play a key role in the industrial and transportation sectors. They act as the lifeline of any machine or equipment that performs. The emerging environmental regulations make the players in this industry more proactive as they have to reduce friction while containing emissions. World demand for lubricants is expected to increase to 45.4 million tonnes a year by 2020. The market will be supported by the rising demand for engine oils, though to be tempered by longer drain intervals that slow the engine oil aftermarket. The Asia Pacific market will grow the fastest driven by engine oils, process oils, hydraulic oils, metalworking oils, and oils for manufacturing and the aftermarket.
There are over 30 leading players in the world lubricants market and they include Mobil Exxon, Royal Dutch Shell, British Petroleum, Total, Chevron, Connocco Philips, Petronas, Agip, Fuchs and Blaser.
Indian Oil Corporation – Servo Lubricants, Bharat Petroleum Corporation – MAK Lubricants, Castrol India, Shell India, Gulf Lubricants, Valvoline Cummins, ExxonMobil Lubricants, GS Caltex India and ELF India are the leading players in the Indian lubricants market.
A unique feature of the lubrication market is that there is no significant slowdown for its demand in any economic or market condition. When the sales of vehicles go up there will be more consumption of lubricants. If sales are down the running vehicles will have to be maintained and that will increase the application of lubricants. Oil change in vehicles will become more frequent as they grow old.
There can be sectoral or company-wise decline in demand for them in the market. Muhammad Arslan Pervaiz, Business Development Manager, Lubrex FZC, based in UAE, said, “when the industry has a slump everybody connected to it does suffer, some more, others less. More uptime for vehicles means lesser vehicle production and consequently lesser sales. This is the main slump that we are seeing in the market. Of course, there are other factors also”.
“From the perspective of lubricant market leaders like us, the slump mostly affects the Tier-1 companies first. The lower tiers do not suffer that much because the Tier-1 had been the first option of a customer. Only later he may go for a lower- ranked, cheaper product. We educate our clients about the potential hazards of going for cheaper oils from lower tier manufacturers that could affect the life of their engines, machinery and equipment. The more the client is educated the less the problem in handling them.”
Another factor that impacts the market is the price fluctuations. “When prices go down we will also have to reduce prices to ensure that customers feel we are always with them, caring about the benefits that they should have. At the end of the day we have to make sure that the customer is more important than the profit we might make from him; this is our goal. When times are good everybody is happy, everybody earns; when times are bad, the customer will be the last person to sacrifice profits, we are the first ones,” Pervaiz said.
Hmayag Sanossian, Managing Director, Liqui Moly Middle East FZE, said that his company always rode ahead on its brand quality and service. “We always go beyond our targets mainly because of our quality and good after-sales service combined with technical training and information availability. We are selling high-end products to meet customer needs very satisfactorily. Also, our marketing activity all over the world, which includes exhibitions and fairs, is constantly pushing our brand name forward. This sector is growing at the moment with many new names cropping up due to the current low oil prices. This is normal as many names also drop out as business fluctuates.”
According to Synthetic Lubricants Market Global Trends & Forecasts, the market size is expected to reach USD36.0 billion by 2020, registering a CAGR of 2.5 percent between 2015 and 2020. Engine oil application segment is to dominate the market. Even in this segment Asia-Pacific is projected to be the fastest-growing market. Due to high use of greases in the manufacturing industry, it is projected to register the highest CAGR between 2016 and 2021.
The cost-conscious transportation industry always prefers the cheaper mineral-based lubricants and according to some reports these oils have the potential to grow faster. But the synthetic oils seem to have an edge over them in terms of performance and emission regulations. Loutfi El Sayed, General Manager, Oscar Lubricants, UAE, said, “it is all about customer education. That is why the customers are moving to synthetics, to save time and money. But in Africa and Middle East they have this mentality of changing oil after every 3000 km; even if they buy synthetics they will do it. There is the challenge to educate them. In Africa I’m certain to sell synthetics; it is the future, automatically people will move from mineral to synthetics.”
Pieter Kuiper, Account Manager Export, Eural Lubricants, based in The Netherlands, said, “We cover the whole lube segment – mineral, synthetic, semi-synthetic – for different markets like automotive (HD diesel), transport, industrial, marine and nautic applications. We make around 90 percent of the products in our current range. We have a speciality division in our company where we cover special applications like special greases for industry. He said that in the Middle East and Asia the scope was more for mineral especially in truck engine oils for passenger cars. “But in Europe regulations are different, so you see lot of synthetics with low ash content. You cannot look at the world as one piece but you have to segregate it into different markets,” he said.
The 0W20 is a fully synthetic oil introduced for the latest Volvo engines PCMO. “It is an example of the applications we have for certain brands. For example, we have 5W30 with Volkswagen 504 and 507 – for its latest Audi and Skoda engines; also for cars equipped with diesel particulate filters. We try to get OEM approval for these special products; we work together with Mercedes Benz and BMW to get their approval letters that our oils are suitable for their engines,” Kuiper said.
James Ng of Hardex based in Malaysia, said, “We are not into minerals at all. If mineral oil goes for 5000km, synthetics will go for 10,000km. At a cost increase of 50-70 percent we get double the life with synthetics that is the speciality. We are only in the aftermarket, with pure synthetic oils.” He said Hardex was exporting its synthetic oils to 50 countries mainly the Middle East and other Asian countries like Philippines, China, Thailand, etc. “To the US and Europe it is less”, he said. Hardex products are not yet available in India as there are a number of other brands. “But we are looking for a good partner to enter India”, James said.
According to Pervaiz Lubrex, “The next generation engines that we have been seeing from 2012-13 are all tending towards synthetics. So a person who uses synthetic oils must have a newer engine or car; one who uses this type of car does not compromise on the quality of oil. Warranty goes up to five years now. Any car purchased after 2013 is still under warranty, being serviced by the same company that manufactured the car or by a standard service provider. These are the people who do not worry about the price; they are more worried about the performance of the vehicle.”
He said there was a potential market for synthetics among the older cars. “Used cars still use mineral oils as recommended by the OEMs. This is what we are targeting as they are likely to shift to synthetics. Drivers normally take cars to service stations where they can save money by using mineral lubes. Owners are not aware of this, it is a fact. In the long-run it would increase wear and tear. So synthetics have to come in here to ensure that quality is not compromised”, Pervaiz said.
There are options in synthetics also, the premium and normal, but with similar qualitative performance. “Even synthetics have two options – the top one made from group-four and the normal one from group-three. If a customer has a modern car that uses synthetics and he cannot afford premium oil, he still has another option available without compromising on quality. As manufacturers and blenders we come up with the maximum options that we can provide to customers so that they do not lose out on any aspect of the lubricant. We will never offer anything that would compromise the quality, safety and performance of the engine,” he said.
Sanossian of Liqui Moly, said, “We have everything – mineral, semi-synthetic and fully synthetic oils that are available in different grades, specifications and approvals. What differentiates us from others is that all our oils are approved by the car manufacturers; we have the highest standard of oils in the market. We offer problem-solving solutions to customers with performance- oriented products.” In the general market, especially the emerging markets, the mineral based lubricants seem to grow faster than the synthetic ones because of cost. However, the role and share of synthetics is getting bigger and bigger in the general market also, he said.
OEMs & Aftermarket
Almost all the lubricant manufacturers find the major share of their business in the aftermarket. At the same time they are conscious of the important role the OEMs have. It is they who decide the type of lubricants for their new engines. According Kuiper of Eural Lubricants, “It’s basically up to the engine manufacturer as to what kind of lubricants he should use. Based on this we adapt our product range to cover these engines. Engines are getting smaller with longer drain intervals. We have tie-ups with high-end suppliers to get the latest technologies in-house to cover these types of engine applications.”
James Ng of Hardex said, “We follow engine requirements and give the most suitable oil for a particular engine. The engine manufacturer tells us which type of oil will be suitable for his engine. Good performance always depends upon the right oil you put into the engine. Car manufacturers are making new engines now so we have to make use of new technologies to ensure that the right oil is used. For example, overheating and higher engine temperatures will require technically superior oil to ensure safety and protection. Specifications are constantly getting upgraded and we have to keep track of it.” Sanossian of Liqui Moly, said “the car manufacturers are now deciding the type and grade of oil to be used in the engines designed by them. Depending on the metals used in manufacture they have to decide on the required viscosity of the oils. They are making lighter but more powerful engines that need lower viscosity oils. For lower viscosity you have to make use of synthetic technology – that is the key driving force.”
About the temperature variations in new engines and the different grades of viscosity of lubricants, Sanossian said, “Temperature does not play that big a role especially when it goes up because the engine is already very hot by the time it reaches the operating temperature. So the external environment will not increase the temperature further; some effect will be there but not much. But if the temperature goes into minus during cold weather there will be a marked effect. It’s the other way around.”
Lubrex has been certified by OEMs but the company does not supply directly to them. This is because in the UAE it did not have a separate manufacturing unit. “We have units in Ghana and Tanzania. The problem is that most of the OE companies do not have blending facilities in this region; they have it in the East (Korea) and Europe (Germany & Belgium). When OEM suppliers get interested in the UAE then we will definitely be on top of the table,” Pervaiz added.
Most of the lubricants companies are focusing on the aftermarket. For Liqui Moly the share from OEMs globally is “not that much because we are mainly focusing on the aftermarket. We also do other products with the OEMs and we have a wide product range – oils, lubricants, additives, car care and service products – everything from A to Z related to petrochemicals,” said Sanossian.
“We are not delivering products directly to the OEMs at their factories. The only OEM we supply directly to is the hand-made sports car manufacturer in Holland. All the other supplies are to the aftermarket,” Kuiper said.
The market size of lubricants is expected to reach USD167 billion by 2021, registering a CAGR of 2.4 percent between 2016 and 2021. This is primarily driven by the increased use of mineral oil lubricants in various applications.
Asia-Pacific and Africa are projected to be the largest market for lubricants in the world as they are the fast growing automotive markets. The rise in disposable income of the people and industrial growth in these regions have led to the increasing demand for automotives. Together with the spread in industrialisation, mining operations and infrastructure development works, the demand for lubricants continues to grow in the region.
According to Sayed of Oscar Lubricants, “UAE, especially Dubai, is known to be the hub for lubricants, distributing worldwide. People here are exporting to countries from Brazil to China, and to cover this wide geographic belt we need to have a complete range of products. Demand will vary according to region. China is one of the emerging markets with a high demand for lubricants. My preference is to focus on Africa where the number of cars is exploding and so the demand for lubricants will be high. Africa is certainly growing but there is a problem of payment; it should improve in the future.”
For Oscar Lubricants the main markets are in Africa and the Middle East. From a global perspective the lubricant demand worldwide depends on the particular region. Europe and USA have very slow vehicle growth. “To avoid this we target markets where growth is really high like Africa. In the last one and a half years demand has been slower as the global economy has gone down. All the companies that were depending on export of crude oil are on a weak wicket today,” Sayed added.
Kuiper said, “We are a company that started in 1977 in Holland where we have our base factories. From there we export our products to about 70 countries worldwide. We are looking at the future to develop new markets where we don’t have a footprint; we believe there will be enough consumption for us to enter there. We have seven factories in Holland with one main blending plant. Our strategy is to make everything in Holland and export it from there. We are exporting to the UAE, Kuwait, Bahrain, Saudi Arabia and Oman. We are present in Lebanon, where we are very successful, and all the way East to Australia, Taiwan and South Korea. We are based in Europe so our main market is there; we supply to all the EU countries.”
“We are also in America (the West coast) but not as big as we want to be. In India we are not yet available but soon will be; we want to make sure that we enter a new market with the right partner. If imports into a country get into problems, it could damage the brand significantly with respect to the quality image and price levels. So we have to find the right way to enter the market; the Indian market is huge but very competitive,” he said. On the other hand Lubrex is active in the markets ranging from East Asia to Morocco. “In the East Asian region we cover Myanmar, Cambodia and India; in China we are just starting. In India we have an agency and soon will be coming up with our second tier products. We are in talks with several companies; let’s see who wins the lottery. We are now also targeting the North and South American markets,” Pervaiz said.
Liqui Moly has been growing dramatically in China which is a huge market. “We are also growing steadily in India which is also a massive market. About 60-70 percent of our entire market worth is just in these two countries. It is a very big potential with its own market conditions that you will have to fully understand before you enter and be successful. Thailand and Philippines are the other areas. Asia today is growing faster than Europe and America,” averred Sanossian.
There is no early sign of end to the argument on whether the commercial vehicle fuel consumption and greenhouse gas (GHG) emission levels should be calculated on only based on the engine or the vehicle as a whole. This is practically putting pressure on the lubricant suppliers to develop advanced grades of engine oils.
On one side there are emission norms and on the other side is the efficiency of the engine. On top of this light weighting, going green, connected cars and other requirements come into play to complicate issues. The lubricant companies have to develop their products taking all these into consideration. Answering questions about the kind of driving force that will push companies to develop new generation lubricants, Oscar Lubricants’ Sayed said that new regulations are helping them as they are targeting high-end products. African companies today have European standards that will move quality upwards, which would help them further.
The Liqui Moly official said, “We have roughly one or two products coming out monthly from our laboratories where we take into account the latest specifications and recommendations from car manufacturers before launching them into the market. We have a big line of additives and sales products that we can use to find solutions to problems that car makers may have.”
“For example, in tropical countries there is a problem of bad smell in the car; it has nothing to do with lubricants. We use a chemical to kill the bacteria in the vehicle systems and give out a pleasant fragrance in the car; it lasts from six months to one year. These types of solutions ensure our products being listed in the OEMs’ manuals; we offer solutions according to their needs and the new regulations.”
The lubricant additives market, according to the Allied Market Research, is poised to reach $17,153 million by 2022, with a CAGR of 2.6 percent between 2016 and 2021. The dispersants and viscosity improvers segments lead the lubricant additives market with more than three-fourths of the market share. Automotive lubricant additives application segment accounted for more than two-thirds of the market share and is expected to grow at a CAGR of 2.6 percent (in terms of volume) from 2016 to 2022.
Lubricant additives are helpful in optimising the performance of lubricants and other functional fluids, as these addendums provide protection from corrosion and wear in conjunction with regulating deposits and fluid thickness. The key elements that drive the lubricant additives market growth include, rising automotive industry, increasing transportation by marine and aviation and stringent emission regulations. However, higher drain intervals of high grade lubricants inhibit the market growth, owing to lubricant solutions with decreased maintenance, costs and servicing.
Heavy duty vehicles and passenger car lubricants segment dominated the automotive lubricant additives market in 2015, generating more than four-fifths of the market share collectively. These segments are estimated to grow with a CAGR of 2.4 percent and 2.6 percent, respectively, during 2016-2022. Metalwork fluids and industrial engine oils accounted for more than 80 percent in 2015. Among different types of lubricant additives, anti-wear agents are expected to grow with a highest CAGR of 3.8 percent, owing to the enhanced mileage and emission standards expected from OEMs by governing bodies.
With the pressure on engine manufacturers increasing to make their machines lean-burn and light weight, they are looking at using dual materials and enhance output without increasing the cylinder bore. There is a clear 30 to 40 percent more power output by the new engines than by the same size of the engine about 15 years ago. The pressure on engine has increased as thermal characteristics have shot up significantly. Therefore, the lubricants need to be thinner and less viscous without evaporating. This phenomenon has led the lube makers to look at nano additives.
The nano additives can reduce the fuel consumption up to 12 percent due to reduced friction and wear. Besides, they can reinforce the surface of the engine bore and rejuvenate the piston. The nano additive cures the micro and nano-defects on the surface that leads to atomic roughness. It is expected to impregnate metallic surfaces thereby increasing their hardness and wear resistance. Due to thin layer of oil it contains dry friction. Moreover, the absence of metals and sulphides help reduce harmful substances. Several global players, including Indian Oil, is working on this new technology.