View from the Bridge - Bulletin 158

Recent comments at ConExpo in the US,  the ICIS Conference in London and the Geneva Motor Show all provided interesting insights into the current state of the lubricants industry. While generally a fairly steady sector, the structure has changed a lot in the last decade.

Global demand in 2013  has recovered to pre-global crisis levels, Kline's updated LubesNet reinforcing the relative stability of the lubes market, but there is no question that the balance of power has significantly altered. AsiaPac is now 50% of the world’s lubricant demand, although Russia has overtaken Japan as the fourth largest lubes consumer. However, the world will have to wait and see whether this growth will survive the post-Ukraine/Crimean crisis.

Fuchs' Apu Gosalia reported that China was now confirmed as the biggest lubes market (as well as the largest car market) and, in a bizarre way, the US and Europe are becoming side shows. With volume growth coming from Asia, the majors are concentrating their investment there and seeking to disengage from areas of the Western markets.

That being said, the US still consumes more lubricants per capita than it rightfully should, particularly when compared to Europe.  Slowly but surely the progression of European type specifications, on the back of the greater import penetration and smaller cars, is extending drain intervals causing a marked reduction in US lubes demand, even though US consumers remain wedded to an extremely high level of frequency. All of these elements mean the US market is likely to become more like a European model, with frequent lubes specification changes creating a need for more agile marketing plans, while products will see a progressive shift to longer-lasting oils.

In reality, there is no definitive reason why the global lubes industry should continue at exactly its current level of around $37bn. There are conflicting trends: improving engine performance and the smaller engines means less demand. Yet, GDP growth and increased use of vehicles in growing economies means greater demand as more people buy cars and use them to travel.

As air quality in China becomes more of a health and political issue, it becomes apparent just how much pressure is on the country's authorities to accelerate  implementation of rigorous emissions controls. This could lead to rapid convergence and maybe even stronger leadership in this area of policy.

Meanwhile, Lubrizol introduced ICIS delegates us to the extraordinary Atomic Knife – a graphic demonstration of what this industry is all about.  Interestingly, Lubrizol appears to be refocusing from its traditional marketing drivers, to the theme of power, efficiency and no compromise. In essence, consumers want more for less.

In Geneva there was further confirmation that the car is becoming a platform for carrying electronics, rather than just a means of transport! As Google researches robot cars and fascias increasingly  resemble i-Pads, the hyperconnected world will impact both car design and lubricants servicing. Our role is provide the systems that allow the lubes consumers to find the right lubricant product wherever they are.  These systems are set to become more sophisticated and interconnected in a matter of a few years or less.

In the more industrial applications, a frequently overlooked sector of lubricants market, it is encouraging to hear that the CEO of Caterpillar is guardedly optimistic, Ukraine not-withstanding. There could also be good news for Gazprom in the machinery sector after its latest deal with Rostselmash.

While the global economy should be set fair in 2014, the risks of shocks cannot be underestimated.

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Sebastian Crawshaw

Chairman, OATS