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September 12, 2017

Volume 7 Issue 3

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Vietnam Increasingly Attractive to Indonesia

Indonesian lubricant blenders might be turning their sights to Vietnam due mainly to the growth potential of its automobile engine oil market, observers and suppliers said.

“Vietnam’s [lubricant] market characteristics are quite similar to Indonesia’s, especially for motorcycle oils,” Hutomo Hadi Saputro, of Ipsos Business Consulting, told a Lube Report Asia reporter. “So it’s reasonable that some lubricant players are glancing at those countries.”

Indonesian lube marketer PT Surganya Motor Indonesia opened its first Planet Ban retail outlet in Vietnam earlier this year to market its X-Ten brand of motorcycle lubricants and other spare parts in the Ho Chi Minh City region.

PT Federal Karyatama is also eyeing overseas expansion, according to a press conference held by CEO Patrick Adhiatmadja late last month in Indonesia. “The production capacity of our new plant will enable us to grow beyond local markets,” he told reporters.

Adhiatmadja told Lube Report Asia that with Indonesia’s motorcycle market flat at best so far this year, Federal Karyatama assumes that domestically produced motorcycle exports have increased year over year, taking a large volume of factory fill lubricants with them.

Federal Karyatama, or FKT, is a wholly-owned subsidiary of PT Mitra Pinasthika Mustika Tbk (MPM), which retails Honda motorcycles. FKT markets motorcycle oils under its Federal Oil brand and blends AHM-branded lubricants for Honda Motorcycles. As of June, Federal Oil held more than 20 percent of Indonesia’s motorcycle oil market share, or the largest in the country, according to a third-party survey.

Vietnam may seem like a natural place to peddle motorcycles and motor oils, given its potential for growth in those markets. Vietnam’s passenger vehicles and light commercial vehicles engine oil aftermarket is forecast to grow at a compound annual rate of 7.6 percent between 2015 and 2021, according to global consultancy Frost & Sullivan. Demand volume for all lubes will increase from 2.6 million liters in 2015 to 4.1 million liters in 2021. For the same period, new vehicle sales and vehicle population is expected to jump by approximately 38 percent and 69 percent, respectively. “These will be the key market drivers to motivate engine oil consumption in the aftermarket,” according to a March report titled Engine Oil Aftermarket Size in Vietnam, 2015–2021.

When it comes to motorcycle oil markets in Southeast Asia, performance in Vietnam and Indonesia is the barometers of a strong brand, according to an Ipsos report published last year. “Although there are a wide variety of brands competing in [Southeast Asia], market leaders in the region are primarily determined by their strengths in Vietnam and Indonesia, which account for more than 80 percent of the region’s total motorcycle population,” the report noted. “Four brands currently stand out from the rest: BP Castrol, Shell, Pertamina, and Petronas.”

Castrol motorcycle oils have a significant role in Vietnam, Ipsos noted, and Shell has a notable –but not strong – market share in the country as well. But Pertamina and Petronas have little to no presence in Vietnam, and neither do the Philippines’ Petron nor Thai firm PTT.

Vietnam makes it easy for Indonesian exporters to bring product into the market under the Asean Economic Community’s Trade in Goods Agreement. In early 2016, Vietnam announced that it would no longer collect tariffs on lubricants imported from Association of Southeast Asian Nations member states.

“In the short-term, the [import] market will be driven by motorcycle lubricants,” said Leon Perera, CEO of Spire Research and Consulting at the time of the announcement. “Vietnam is one of the world’s largest and fastest-growing markets for motorcycles, and this growth will continue. In the longer-term, car lubricants [sales] will grow as Vietnam approaches the tipping point when car demand takes off.”

The Vietnamese market is dominated by mineral engine oil because of price, the Frost & Sullivan report noted. However, with improved consumer awareness, “Semi-synthetic and synthetic engine oils will be growing rapidly from a combined market share of 41 percent in 2015 up to 56 percent by 2021.”