View from the Bridge - November 2016

Even before the US Presidential election result, but after Brexit, economists were already concerned about the slow growth pattern which is increasingly viewed as the norm.

With the news that Donald Trump is now President Elect, the picture becomes even less clear.

Against this background, several challenges were laid down for lubricants manufacturers at this year’s UEIL Congress.

Overall global lubes demand was reckoned by Kline and other speakers to continue as close to the same level as in previous years. But, with personal mobility accounting for 25% of global lubricants demand, this masks significant changes.

Blake Eskew, Vice President of IHS Energy Insight highlighted several key shifts in personal preferences: owning cars; car sharing; or maybe not even owning a driving licence.  All are reflected in increased use of Electronic vehicles (EV) combined with the use of Uber or hourly car rental.  This is supported by Mckinsey's recently published views.

Eskew even imagined a scenario where the car could become as outmoded as the horse was 120 years ago, with the car population falling by 40%. Given the historic growth of cars this is a seismic shift. It may take some time due to the general duration of a vehicle’s life, but governments and their electorate may intervene to shorten the transition. Already Norway and Germany have passed legislation to ban sales of internal combustion engines from 2025 and 2030 respectively.

If the extension of the oil drain intervals continue, then a scenario where PCMO lubricants’ demand falls 50% is not far fetched. For the independent lube manufacturer, or indeed the majors, this is significant. What appears like a progressive change 10-15 years away may turn out to be far more immediate.

The recent political tussle as California's state regulators failed in their attempt to tighten up oil drain regulations for auto repairers may be a very small battle this much larger war.

What are the strategic implications? While the flexibility of movement will still be attractive for rural communities, it is difficult to see strong growth continuing in PCMO lubricants volumes. If we factor in the improvements in efficiency in other areas, due to the Internet of Things, lubes producers will need to seek better value solutions and move further into heavy-duty and industrial applications.

The lubricants industry is still not maximising the effective return on their internet investments. More companies are talking to OATS about simplifying product lines and seeking ways to enhance their service offerings on a global basis. In response we have designed solutions that fit with this era of slower growth, enabling producers to do more with less. In other words, greater accuracy of recommendation with less effort to support consumers.

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Sebastian Crawshaw