Welcome to 2010 and the first streamlined OATS bulletin of the new decade. In December 2008, with the world economy in chaos, I set about reviewing what I thought would happen in 2009 to help OATS take a view on what to do next. This year I have done the same thing.
With the lubricants industry linked to capital goods manufacture and manufacturing in general, 2009 could have been a lot, lot worse. Much of the pain was eased by huge amounts of government support, called Quantitative Easing, in many parts of the world. As it was, we saw close to zero growth globally for the first time since records began.
In the G7 countries (America, Japan, Germany, Britain, France, Italy, and Canada there was a fall. But in the E7 (China, India, Brazil, Russia, Mexico, Indonesia and Turkey) there was continued growth. This may be highlighting a trend for the next decade. The gap in GDP between the G7 and the E7 is closing, with the faster growing E7 likely, according to analysts PriceWaterhouseCooper, to overtake the G7 some time around 2018.
Several leading bank economists view 2009 as a “tipping point” when the power and economic influence moves from the indebted West to the savings-led East. In fact, 100 years on, the parallels with 1910 and the shift from Britain to the US are fascinating. In 2010, we can look forward to a recovery in the US of around 3%; Euroland 1%. In Asia, China will lead the way with up to 10% predicted growth, India at 6%, with Association of East Asian Nations (ASEAN) at 4% overall, although the emerging ASEAN territories are predicted to grow at 6%.
So what are the implications? Lubricants markets follow economic growth, and are increasingly sensitive to industrial production as the economies become more developed.
The US lubricants market should bounce with the industrial recovery; likewise the main European markets will recover. If the GDP multiplier effect we saw on the way down is reflected on the way up, they should each recover by 10 and 5% respectively. Meanwhile the continued steady progress elsewhere should see solid growth in the Asian markets.
We can expect to see further emergence of local indigenous oil companies, the 'Local Majors', following the pattern of the car industry buying up cheap assets in more developed markets, as the traditional majors divest of their “less core” assets.
Welcome to the new decade. It should be an exciting ride.
Just as a footnote: What is the surest way to have a cold winter? Hold a climate change conference about global warming that costs US$100m!
Sebastian Crawshaw, Chairman OATS