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January 3, 2018

Volume 3 Issue 4

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New Vehicles Reshape Latin America’s Market

JERSEY CITY, New Jersey – Many of the automotive engine oil trends that are swaying markets globally – the drive for greater fuel economy, extended service life and durability, and rapid advancements in engine design – are also influencing the Latin American lubricants market, according to several presenters at the ICIS Pan American Base Oils and Lubricants Conference here last month.

Yair Rodriguez, account manager for Lubrizol Mexico, pointed out that the Latin American market is the second fastest growing market worldwide. With a vehicle fleet of 113 million in 2016, the region is expected to have 127 million vehicles by 2021.

Photo: alffoto/iStock

A variety of vehicles are stopped in a traffic jam in downtown Sao Paulo, Brazil. The South American country had 360,000 tons per year of passenger car motor oil demand and 223,000 of heavy-duty motor oil demand in 2016, according to Marcos Davi Santos, Latin America area sales manager with Chevron Oronite.

Brazil still holds the lead for the region’s automotive engine oils market, demanding 360,000 tons per year of passenger car motor oil and 223,000 of heavy-duty motor oil, reported Marcos Davi Santos, Latin America area sales manager with Chevron Oronite. Mexico follows with a yearly thirst for 203,000 tons of PCMO and 108,000 tons of HDMO, he estimated, based on a Kline & Co. study performed in 2016 as well as Oronite’s own analysis. Central America and the Caribbean combined for 74,000 tons of PCMO demand and 73,000 tons of HDMO consumption. Seven other key markets (Venezuela, Argentina, Colombia, Peru, Ecuador, Chile and Bolivia) together need 209,000 tons of HDMO and 253,000 of PCMO.

API SN and SM oils, the American Petroleum Institute’smost recent passenger car engine oil categories, account for 21 percent of PCMO demand in Latin America, while API SL holds the largest share at 38 percent. API categories SG and SH – both obsolete – along with SJ oils are still sold to 26 percent of the market, and the remainder is 1980s-era API SF quality or worse.

HDMO demand in the region is dominated by API CI-4 at 46 percent. A sliver (2 percent) is CI-4Plus, and another 9 percent is CJ-4. API CH-4 accounts for 26 percent, leaving 17 percent of the market for obsolete products such as CG-4 and older category oils. As Rodriguez pointed out during the ICIS conference, API CG-4 is 23-year-old technology and not suitable for today’s vehicles, so demand for these lubricants is shrinking.

Particularly in Brazil, the trend toward lighter-viscosity oils and global vehicle platforms continues. Three-cylinder engines are rapidly gaining share in that market and in other countries in the region. These smaller displacement engines with higher power density are changing performance demands on lubricants and additives, stated Davi Santos. Low-speed pre-ignition is also becoming a concern in Brazil, where turbocharged, direct-injection engines are making inroads. Rodriguez expects 40 percent of all vehicles produced in Latin America to be equipped with TDI engines by 2020.

“Consumer awareness and OEMs’ common engine platforms definitely place Latin America in the higher performing engine oils market,” Davi Santos affirmed.

The region continues to tighten emissions restrictions, which also contributes to demand for higher quality lubricants. Brazil aims to reduce current greenhouse gas emissions by 37 percent by 2025, and by 43 percent by 2030, aligning with the country’s participation in the Paris climate agreement, reported Davi Santos.

Mexico has committed to reducing its emissions by 25 percent by 2030, just over half of which it expects to achieve through reduction of soot from diesel used for transportation and fuel oil used for power generation. Argentina has established the National Cabinet of Climate Change specifically to address its commitments made in Paris, and the cabinet has already passed 50 new regulations. Peru plans to reduce its emissions by 30 percent by 2030, demanding participation from its industry, energy, forests, agriculture, transport and waste sectors.

In Brazil, the region’s largest country market with lubricant demand of approximately 725,000 tons from January to September of last year, “the worst times are already gone,” insisted Guilherme de Paula, Americas regional business chief at Petronas Lubricants International. Unemployment is expected to decrease to 11 percent in 2018, down from 13.7 percent last year, while inflation and interest rates take a dive.

Petronas counts more than 100 companies producing finished lubricants in Brazil, but just nine majors supply 85 percent of the market volume, said de Paula, citing data from Sindicom. Petrobras leads in at 27.1 percent, and Moove (which markets Mobil products) and Ipiranga nearly tie for second place at 17.5 percent and 17.2 percent, respectively. Chevron/Texaco holds 11.6 percent, Petronas has secured 11.2 percent, and Shell 10 percent, Total (2 percent), Castrol (1.7 percent) and YPF (1.7 percent) round out the count.

The Brazilian car parc is even younger than that of the U.S., de Paula pointed out, and so presents great opportunity for synthetic engine oils. With access to API Group III base oils made in Malaysia, Petronas Lubricants has been avidly pursuing market share here, and climbed to fifth place in the rankings in just two years, he added.

Mexico, the second fastest growing market in Latin America, is also seeing car counts climb. Its fleet attained 800,000 cars in 2010, said Lubrizol’s Rodriguez, and that number is expected to more than double by 2021 to 1.85 million units sold. Average passenger vehicle age is 15 years, and 54 percent of the fleet requires API SN oils. In the country’s rapidly expanding heavy-duty fleet, 53 percent of vehicles required API CI-4 and above in 2017, and 74 percent will be using such oils by 2021, he forecast.

Rodriguez sees consumer attitudes in Mexico shifting toward higher quality industrial oils, as well.

While demand for API Group II base oils in Latin America will continue to grow as in the rest of the world, API Group I oils will remain predominant in key Latin American countries, Davi Santos at Chevron Oronite expects.

Brazil produces most of the API Group I oil that it consumes, but must import other types. Forty-five percent of the country’s base oils came from its own refineries and 18 percent from rerefineries, leaving 37 percent for imports, said de Paula. Only 20 percent of the API Group II oils the country consumed were domestically produced.

With the trend toward lower-viscosity lubricants, Brazil’s demand for API Group III is on the rise. De Paula expects demand for these oils will increase from just 5 percent of total base stock demand in 2014 to 14 percent by 2030.

De Paula also sees opportunities for lubricant companies in the mining, agriculture, infrastructure and logistics, automotive and industrial sectors in Brazil. “Brazil remains an emerging market, ripe with opportunities,” he explained, “not least because some of the requirements for emerging markets differ from those of saturated markets.”