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September 10, 2019

Volume 2 Issue 37

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Geographic Lube Demand Trends Shift

Global lubricant demand has been mostly flat during recent decades, but the geographic spread of that demand has shifted significantly, an industry analyst told a conference late last month.

Performance demands for those lubricants have also risen a lot, K&E Petroleum Consulting President H. Ernest Henderson told Active Communication International’s U.S. Base Oils and Lubricants Conference, leading to big changes in the base oil market.

“We’re in a relatively flat industry in terms of demand, but the makeup of that demand has changed dramatically over the last 25-plus years in terms of the quality and performance drivers that are impacting the base oil industry,” Henderson said at the event here on Aug. 28.

“New and interesting technologies on the processing side help to add lower cost to manufacturing and provide better quality to base oils, which in turn are valuable when you go to market and try to work on [formulations for] both specifications in the future or on the immediate side. It does provide opportunity to continue to make better and better quality base oils to support an ever evolving [lubricant] industry that is looking to meet technical challenges in areas of fuel economy, durability, emissions control.”

Henderson estimated global lubricants demand at about 39 million metric tons for 2018, which he calculated to represent an 0.8 percent increase versus 2016 and 2017. He noted that global demand in the early 1990s was at about 38 million tons.

Comparing 2018 to 2004, he reflected on the evolution of regional markets over that time. In 2004, he said, three main regions dominated in lubricants and hence base oil demand – Asia-Pacific, Europe and North America. “They basically had a very comparable share, roughly 29 percent each,” Henderson recalled. “Then the rest of the world would be divided equally [in lubricants demand] between Latin and South America, and Middle East-Africa. However, over the last 20 years, that shift has been fairly dramatic.”

Based on data collected by Henderson’s Oklahoma City, Oklahoma-based consultancy, Fuchs Petrolub, IHS and Kline & Co., he estimated Asia-Pacific represents a significant portion of global lubricant demand – 44 percent in 2018 – driven by China and India, “as those countries become more and more advanced in the use of finished equipment, and the lubricants that support that finished equipment,” he said. “That’s at the expense of other regions around the world because again, the total number is really not changing very much. So if you see growth in one area, it has got to come at the expense of other regions.”

North America accounted for 24 percent of global lubricant demand last year, while Europe – Western, Eastern and Central combined – accounted for 17 percent.

“Europe and North America have declined somewhat, in terms of overall demand, but that doesn’t mean the economies are necessarily slowing down,” Henderson said. “One of the things we’ve seen in these regions is the fact we’ve embraced energy efficiency, emissions control, improved durability. We’re able to make lubricants that have higher quality, last longer and protect your equipment. So in essence we’re changing a little bit of volume for performance. That’s reflected in some of the demand numbers that we see in the lubricants and hence base oil industries.”

Henderson pointed out that regions such as Latin America, South America and the Middle East are gradually seeing more and more demand for Group II base oil. “Unfortunately, in those markets they’re not making those base oils,” he noted. “We’re seeing significant qualities and quantities of base oils being exchanged on a global basis from region to region.”

He noted that technical challenges remain significant. “The automotive industry is really the one that drives this whole specification and technology shift that has significantly impacted the base oil industry,” Henderson said. “Many times you have governments as a whole setting forth performance specifications: We want better fuel economy, we want to protect the environment, we want the world to be a better place to be in the future. We as lubricants people try to develop the proper lubricants and componentry that goes into those lubricants to meet the requirements of the [original equipment manufacturers], who in turn are meeting requirements of government and overall industry.”

Henderson explained that the geographic makeup of lubricants demand changed dramatically over the past 25 years or so. “We’ve seen consistent growth in population, vehicles, economic growth in many countries – double-digit changes in China, India and other places,” Henderson said. “Yet we don’t see a significant change in global demand.”

That’s because the world as a whole became more efficient in how it uses lubricants. “We’re making higher quality lubricants that allow us to operate for longer periods with limited lubricant volumes,” he said. “So we’re seeing an offset on the efficiency side to counter-balance what we’re seeing in terms of general demand that you would associate with population growth.”