Having previously taken a view from the bridge from China, Russia and Europe's perspective, this month I thought that a US viewpoint might be informative.
The fallout from the recent French and Greek elections continues to highlight the challenge of rebuilding growth in the Europe. Those governments which have failed to do so - five or more so far - have been punished at the polling booths by their electorates.
By contrast the US - which of course prints the world’s reserve currency - has sorted out its banks quickly and kept borrowing to drive up consumption and general consumer demand.
While Europe languishes in a mire of recession and German-driven austerity, the US is powering forward. Having sorted out its banks quickly, the US has kept borrowing - although, in reality, no faster than the UK. This is to ostensibly drive up consumption and general consumer demand.
The effect? Goldman Sachs has upgraded its US GDP forecast to 2.5% for 2012, having previously made gloomy statements as recently as Oct 11 with a forecast of 1.4%. Of course, it does help if you have no risk of default because you print the world’s reserve currency, the Dollar!
The US Manufacturing PMI growth rate has also increased to 54.8% during April 2012. The Index estimates the economic progress of the U.S. manufacturing sector and rose for the 35th consecutive month, showing a 1.4% percent point improvement over March. This means that the U.S. manufacturing sector is growing at a faster pace in April compared to March and can only be further good news for the economy.
Consider the results from Caterpillar in Q1 2012: Sales up 25% and strong profitability improvements too. With only 3% of their sales coming from China, Caterpillar remains a key bell-weather of the US economy and resource industries. Organic growth in Cat's resource industries segment added a little over 36%. Stunning by any standards.
On this basis, unlike his French, Italian and Spanish counterparts, current US President, Barack Obama, looks more rather than less likely to be re-elected.
So, what does this means for the Lubes business? It's probable that the US will at least hold-off being overtaken by China as the leading lubes market for just a little longer.
However, the positive US growth figures are not filtering down directly to the lubes businesses. Ashland (Valvoline’s parent) has produced results for the March 2012 Quarter of just two percent growth as compared with March last year. BP, ExxonMobil and ConocoPhillips (which also saw its new structure begin trading last month) all saw disappointing results, although Shell and Chevron revealed more positive news as did chemical specialists Afton and Fuchs. Meanwhile, general price increases are being announced across the industry.
Under these circumstances better marketing and focussing on the growth angles are going to be key to the fortunes of the lubes industry. While Fuchs' CEO might believe that the oil companies are 'losing interest' in lubes, the developing markets are certainly well set to make the most of the technological lessons learnt by the OECD nations according to the latest white paper from the team at RPS which has been published on the OATS website.
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Sebastian Crawshaw
Chairman, OATS