INDIAN LUBRICANT INDUSTRY - SHRINKING MARGINS
Declining demand growth of automotive lubricants, increasing competition on account of the presence of a large number of players, and increasing raw material costs and marketing expenditure are leading to declining player margins in the lubricant industry. Global Scenario
Global demand for lubricants in the world is estimated at around 41 million (mn) KL. Automotive lubricants account for around 54%, Industrial lubricants for around 41% and Marine lubricants for the balance.
Globally, the lubricants industry has been growing at 2.0-2.5% per annum in the past five years. In developed countries, automotive lubricants have been growing at a slower rate of 1.0% per annum on account of the saturation of vehicle population, improved engine technology and better quality of oil.
The region wise distribution of lubricant demand worldwide is shown below: Region wise Demand
Source: Published Sources
Asia is the third largest market for lubricants in the world and is expected in future to grow at a faster rate as compared to other developed markets. Asia’s share in the world lubricant market has increased from 22% in 1993 to 25% in 1998. The per capita consumption of lubricants in different countries is shown below:
Source: Published Sources
The global lubricants industry consists of more than 1700 players of which less than 2% control around 70% of worldwide sales.
The years 1998 and 1999 have witnessed a number of mergers in the oil industry. These included the three largest mergers in the petroleum industry in recent times. In late 1998 British Petroleum Plc, UK merged with Amoco Corporation, USA followed by the merger of Total SA, France, with Petrofina, Belgium. The last merger was that of Exxon Corporation, USA with Mobil Corporation, USA, which created the world’s largest publicly traded oil company. Though the major merged entities are mainly petroleum or energy companies, they
are also large players in the lubricants industry. Exxon was the world’s largest base oil manufacturer, while BP, Amoco and Mobil also had strong lube operations. These mergers have changed the structure of the industry significantly. The latest consolidation specific to the lubricants industry has been the acquisition of Burmah Castrol Plc, UK, the world’s largest player in the consumer (retail) lubricants segment by BP Amoco Plc, UK. The mergers have further concentrated a large part of the world lubricant market in fewer hands. Additionally, most of the merged entities are also large suppliers of base oils worldwide. Hence, the mergers have further concentrated this market, with majors like Exxon, Mobil, controlling the base oil market. This is increasing the volatility in the base oil supply and hence, price.
Further consolidation is expected in the global lube industry, especially as independent lube manufacturers would be affected by the sharp rise in base oil prices, following the increase in crude oil prices.
Automotive engineering technology has improved significantly in the past few years, with a corresponding impact on the improvement of lubricant quality. Improving engine and lubricant technology has resulted in the decline in the lube to fuel ratio1. Additionally, there has been a demand from both the OEMs and the customers for better quality lubes with longer life, better properties and lower deposit formation, meeting the stringent emission standards required.
A critical requirement for the manufacture of high quality lubricants is the quality of base oil used. Limitations on the physical properties of Group I base oils in various products is expected to result in an increased demand for Group II/III base stocks. Group III base stocks can...
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