Travelling to Russia and China in the last month, I have been struck by certain similarities and contrasts.
In both Moscow and Beijing, the car parc is extraordinarily modern, much more so than, say, London or Paris. While Russia suffered a severe reverse during the “global crisis” with a sharp fall in output and vehicle consumption, China just stormed forward. In China the infrastructure is remarkable. The roads are new, the rail system growing. In Moscow the roads are so clogged that the city is dysfunctional. Outside the capital, in other cities, we were reminded that progress is not so dramatic and there is a long tail of old equipment.
So what does all this mean for lubricants demand? At the WRAC Moscow conference I observed a new realism compared with a few years ago. The market forces mean that the old refineries producing low grade lubricants have to be upgraded. GOST is effectively dead and the international API/ACEA specifications are setting the standards that the local blenders will have to meet or find themselves in the low cost/low value/low margin end of the market. In many respects the same applies to the Chinese market: there will be a need to move the industry forward with higher specifications and better lubricants.
At the economic level, the BRIC group embraced a new member, South Africa, to become the BRICS. At the same time combined output is now forecast to overtake the US by 2015, five years earlier than the original Goldman Sachs forecast, confirming that this is the real engine for global growth in the coming years – not the US or Europe.
The impact on long term commodity prices has been, and will continue to be, dramatic as can be seen in the majors’ recent results. Some investment commentators are observing this is an historic turning point when the limits to growth, forecast by the Club of Rome in their seminal study in the 1970s, are exceeded. But this is all being driven by China and BRICS growth. What if China’s bubble bursts as other commentators are predicting? We could see a collapse in commodity prices and sharp reversals in the commodity-driven economies like Australia. The fall in Japanese GDP is a stark reminder of how fast things can change.
As always, there are also plenty of exciting changes happening here at OATS and over the next couple of months we’ll be telling you more via the OATS Bulletin. However, if you can’t wait to find out what we can offer you by way of the latest lubricants database technology or, as always, you would like to offer comment or contributions to the OATS Bulletin, please contact us at bulletin@oats.co.uk.
Sebastian Crawshaw, Chairman OATS