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December 25, 2018

Volume 3 Issue 7

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South African Market Engenders Optimism

CAPE TOWN, South Africa – New players and investors have a growing confidence about the future of South Africa’s lubricant market because of positive trends in economics, politics, industry and infrastructure, an industry insider told the ICIS African Base Oils & Lubricants Conference in Cape Town, South Africa.

Samson Mkwanazi, a manager for Sasol Energy, said factors and segments driving the reinvigoration of the South African lubricant market include economic activity, political stability, policy certainty, regulatory framework, investment in infrastructure, industry competitiveness, equipment manufacturers and the Black Economic Empowerment scheme that has helped more small players come to the market.

Mkwanazi explained that the sense of optimism in the South African lubricant market derives from political stability, new political dispensation and perceived economic turnaround and growth. He pointed out that the optimism resulted in major developments in the country’s lubricant market such as the emergence of relatively new brands such as Puma, Valvoline, Rocol and many smaller local brands; the rise of private label brands such as Bell Equipment, Caterpillar, Cummins and Mercedes-Benz; the emergence of original equipment manufacturer genuine oils from automakers such as BMW, Nissan and Toyota; and the increasing presence of local blenders who market their own brands.

In addition, he said that the types of mergers and acquisitions that have taken place in the South African lubricant market are expected to continue for the foreseeable future. According to Mkwanazi, the mergers are driven by opportunistic investment into distressed assets put up for sale by oil majors wanting to exit the country’s market.

Some of the mergers and acquisitions that have happened in South Africa’s lubricant market include the takeover of Chevron Southern Africa assets by a Glencore-backed consortium, which now goes by the name Astron Energy; independent lubricant blender Fuchs’ takeover of Lubritene and Labrasa in 2017; Umongo’s takeover by Omnia in 2017; and Brenntag’s acquisition of Multisol.

Mkwanazi forecasts that the South African lubricant market will consolidate at the top, with the possibilities that major companies merge, rationalize or exit the market entirely. “The big players may acquire small players, most especially in the niche segments of the market,” said Mkwanazi. One reason will be to complement a larger market player’s existing brand, he added.

However, he added that at the bottom small players will likely increase their presence in the blending and marketing segments of the South African lubricant market. He said this development will result in overcapacity in blending facilities. Mkwanazi said small players can drive South Africa’s lubricants market, but noted they may not have adequate resources to do so.