August 23, 2016
Volume 7 Issue 4
Industrial Market Wide Open in SE Asia
Southeast Asia should see healthy demand growth for both industrial and automotive lubricants in coming years, according to a recent report by Ipsos Business Consulting. The industrial market is less competitive, but product distribution is key for all parts of the market, the firm concluded.
“Capturing the right opportunities within the industrial lubricant segment would probably provide higher profitability relative to the already saturated and competitive automotive lubricant segment,” Wijaya Ng, global industrial sector lead at Ipsos told Lube Report Asia in an interview. “The diversity of the manufacturing industries and their varied development trajectories in individual Asean countries make up an exciting and constantly evolving market with potentially lucrative niche opportunities.” Asean, the Association of Southeast Asian Nations, is an economic bloc of 10 countries from Southeast Asia.
Skilled labor, a pro-business climate and improvements in infrastructure transformed Asean into an attractive investment destination for manufacturers. “This investment takes many forms, ranging from automotive hubs in Thailand and Indonesia, electrical and electronics clusters in Malaysia, food manufacturing and processing plants in Philippines to petroleum and metal-based manufacturing in Vietnam,” said the report, The New Lubricant Trade in Asean.
According to the report, industrial lubricants represent the second-largest segment in the regional lubricant market after passenger car and motorcycle lubes. It has an estimated annual consumption of 700 to 800 million liters, or 30 percent of the total lubricant demand in 2015, and is expected to reach 1 billion liters by 2020. This is equivalent to a 5 percent cumulative annual growth rate for the five-year period.
The growing diversity of industries in the region offers opportunities in the industrial segment, but players have to keep up with “the distribution structure of industrial lubricants [as it] has evolved over the years to serve the dispersed industrial landscape within Asean,” said Ng.
“Traditionally, lubricant manufacturers have relied on primary and secondary distributors as their primary channel to market," he added. "However, the diversity of Asean means that there are exceptions in each of its member markets. Like [retail] lube shops are a popular channel in Thailand, while the gas station in Malaysia is an important channel to service its relatively large proportion of mobile construction equipment." Primary distributor refers to the first-tier distributors sourcing products directly from the manufacturer. Secondary distributors buy from first-tier distributors, including wholesalers and resellers.
Ipsos’ analysis, based on estimated volume share across the Asean region, showed that “Shell, Pertamina, Idemitsu and Yushiro are the stronger brands within the [region’s industrial segment] in terms of market size and penetration, while Japanese brands tend to be more popular for specific machinery from Japan,” Ng said.
Demand for automotive lubricants is also forecast to rise. In 2015, there were about 5 million trucks in the region. Data from Ipsos showed Asean governments planning to invest U.S. $100 billion for road infrastructure projects between 2013 and 2025. “Both the truck population and truck utilization rates are expected to rise gradually in the next five years, and this increase is expected to shore up demand for commercial vehicle lubricants from 450 to 500 million liters per year in 2015 to 600 to 650 million liters per year by 2020,” Ipsos Senior Consultant Henry Law said.
Lubricant distribution in the commercial segment is mostly direct, with “almost seven out of 10 fleet vehicles owned by fleet operators that have in-house workshops, which allows manufacturers and distributors to target them easily,” said the report. Shell and BP Castrol are the strongest brands for commercial vehicle lubricants, followed by Caltex, Thailand’s PTT, Indonesia’s Pertamina, and ExxonMobil. Emerging regional brands include the Philippines’ Petron and Malaysia’s Petronas Lubricants.
Combined demand for passenger car motor oil and motorcycle oil is expected to reach 1,150 to 1,200 million liters/y. A greater number of suppliers means more competition than in the industrial segment, and distribution channel can be the key to survival. Many companies focus on this segment and use local retail shops, servicing workshops and gas stations for distribution, but product exclusivity arrangements are required, and managing them presents challenges.
“A good understanding of localized channel demand trends – such as the distribution through sari-sari stores in the Philippines and motorcycle wash stands in Vietnam – may provide the winning edge to succeeding in this sector in Asean,” Law said.
International brands, Shell, Castrol, Caltex and ExxonMobil, dominate the top four positions in Asean followed by the national oil companies in Indonesia, Malaysia, Thailand and the Philippines.
“While Thailand and Indonesia are established automotive hubs with an attractive market size, competition in the automotive lubricants segment is much stiffer than the industrial counterpart,” Law said. “In addition to the established international brands and government-supported national brands, there are also numerous other well-known brands – at least in their own countries – originating from Europe, North America, and China that are competing for the same market share across Asean.” Law added.
However, “we believe that Asean is one of the more attractive investment destinations for lubricant players in the next three to five years, especially in the industrial segment where the market is growing faster than before,” said Ng.
The report estimated that total lubricant demand the region was 2.5 billion liters in 2015 and the volume will hit 3.2 billion liters/y by 2020, a cummulative average growth rate of about 5 percent. “Although Asean currently represents 11 percent to 13 percent of Asia’s lubricant market, this share may grow to 15 percent to 17 percent by 2020, making it a sizeable market at the very least,” Law added.
Founded in France, Ipsos Business Consulting claims to be ranked third in the global research industry, employing more than 16,000 people in 87 countries.