North Africas Patchwork Lubricants Market
The countries that make up the North African lubricants market each have their own distinct demand characteristics, but each is on an upward growth path. Emeka Umejei paints a picture of this diverse bloc, highlighting their players, challenges and opportunities.
North Africa is one of the continents richest hydrocarbons regions, with substantial reserves of crude and natural gas. The region also hosts some of its biggest lubricant markets, in Egypt, Algeria, Tunisia and Morocco. Its combined demand of more than 920,000 metric tons per year represents around 50 percent of Africas total.
North African lubricant demand is mostly supplied and manufactured locally using imported raw materials. Only Egypt and Algeria produce base oils, with nameplate capacity of about 342,000 and 183,000 t/y capacity, respectively, according to LubesnGreases 2018 Global Guide to Base Oil Refining.
At around 600,000 t/y, Egypt is Africas largest lubricant market, followed by South Africa, Nigeria and Algeria, and represents as much as one-sixth of the continents demand. Of this, 27 percent is industrial and around 70 percent is automotive.
Leading domestic lubricants companies include Misr Petroleum and Copetrole, both owned by the Egyptian Petroleum Authority, the national oil company. Major foreign entities are also present, such as Shell, which has a 19 percent market share despite divesting its service stations to Total. Total operates the 90,000 t/y Borg El Arab lubricant blending plant in a joint venture with OiLibya.
Meanwhile, the leading supplier of finished lubricants is multinational giant ExxonMobil, with more than 25 percent of the market, according to global consultancy Kline & Co. While local brands are well represented in the market, brand-conscious Egyptian consumers prefer international products, according to Kline. The U.S. company has two oil manufacturing and packaging plants in the cities of 10th of Ramadan and Alexandria.
Algeria is the second-largest lubricant market in North Africa and the fourth largest on the continent. The country consumes an estimated 170,000 t/y but is not self-sufficient. It has relied on joint-venture agreements to supplement base oil supplies to the local lubricant market. However, the state has focused on acquiring overseas assets to meet local consumption. In May 2017, Sonatrach, the state-owned energy company, signed a deal to acquire the 175,000 barrels per day Augusta refinery in Sicily from Esso Italiana, a subsidiary of ExxonMobil.
The fifth-largest lubricants market in Africa is Morocco, with estimated demand of 110,000 t/y, accounting for some 5 percent of Africas total. Automotive is a large chunk of this demand, including passenger car motor oil, passenger car diesel oils, and two and four stroke motorcycle lubricants, representing more than 70 percent of total consumer lubricant volume, according to Kline. This is followed by gear oil, greases and automatic transmission fluids.
The three major suppliers to the Morocco lubricant market are Total, Shell licensee Vivo Energy and Afrilub. They account for more than 75 percent of the market. In addition is Winxco Morocco, a wholly owned local entity, and, alongside Afrilub, is one of the two leading independents on the Morocco lubricant market.
Kline expects consumer automotive lubricant consumption to grow in Morocco by 2.3 percent by 2020, from 29,000 t/y to more than 32,000, brought about by a modernizing car parc and complex regulations governing second-hand vehicle imports.
Morocco is also North Africas largest car manufacturer and the second largest in Africa after South Africa, meaning significant factory-fill business.
Tunisian lubricant consumption is estimated at 48,000 t/y. State-owned entities such as Entreprise Tunisienne DActivites de Petrolieres and the Socit Tunisienne des Industries du Raffinage hold exclusive rights to import petroleum products into Tunisia.
The countrys market is also dominated by another state-owned entity, Socit Nationale de Distribution des Ptroles, known as Agil. Agil, formerly Italys Agip SA and nationalized in 1977, offers a range of engine and industrial lubricants and greases, including Tanix and Eni-branded engine, hydraulic, metalworking, compressor and marine oils, as well as Nynas transformer oils.
In July 2016, Agil acquired 34 percent of Lubrifiants de Tunisie, a subsidiary of OiLibya that has lubricants production capacity of 40,000 t/y.
One challenge to the regions lubricant market is a lack of standardization and quality control. The quality of oil in Egypt is not the same in Morocco or Tunisia, making regional lubricant trade problematic. The investment in Moroccos automobile segment and Tunisias trade with the EU has resulted in demand for higher grade oils. The same cannot be said of Egypt and Algeria. The case of Egypt is significant, noted Rami Al Kinanny, general manager of Hitech Oils and Greases, Egypt, said at the ICIS African Conference in Ghana, because of substandard products flooding in from the United Arab Emirates.
There are lots of loopholes in customs regulations, which allow huge amounts of substandard lubes in and out of countries – not only in Egypt – damaging local investors and end consumers as well, he said.
Al Kinanny told LubesnGreases that the North African market is expanding and for a variety of reasons. The Algerian market is growing because oil prices are going up. It is 100 percent dependent on oil prices, whereas in the other three countries GDP is going up, foreign investments are spiraling and infrastructure projects are happening, especially in Egypt and Morocco. So these countries are growing from these points.
In addition, Al Kinanny explained that while inter-regional trade occurs, it is uneven, with Morocco the leader. Their banks are opening all over Africa, even in Egypt, while Egypt is still dormant on the commercial level. He added, Tunisia tends to have good regional trade because it is surrounded on one side by Libya and on the other by Algeria. However, he explained that because Tunisia needs to cross these two countries to trade with Africa, most of its trade is with Europe rather than Africa. Algeria has the same trade outlook as Egypt – it is dormant on the commercial side.
African Development Bank forecasts average growth of 5 percent in 2018 and 4.6 percent in 2019 for North Africa, comprising Algeria, Egypt, Libya, Mauritania, Morocco and Tunisia.
Base Oil Trends
The inevitable shift from API Group I to Group II and III is taking place in North Africa, as it is all over the world, albeit gradually, Al Kinanny said.
The Algerian market is still mostly a stable Group I and Group III domain, and there is no real focus on Group II base oils, explained Bicham Bouzoubaa, senior business manager in Morocco for Saudi lubricants company Petromin International. For Morocco, Bouzoubaa said the lubricant market is basically a Group I market but added that it is shifting from monograde to multigrade with the renewal of the vehicle parc and the new investments that were made.
According to the Moroccan Association for the Automobile Industry and Trade, the countrys automobile sector has attracted several original equipment manufacturers, including Frances Renault and PSA Group, and Chinese car manufacturer BYD, as well as around 26 subcontractor factories amounting to investments worth 1.23 billion.
All car drivers are now more able to use multigrade products, and given the availability and cost of Group II, blenders in Morocco are attempting to use Group II to blend products. It is already being used in Morocco, said Bouzoubaa.
The Egyptian market is also a Group I market, but with little progress made towards higher grade oils. The automotive sector is large and is split between heavy-duty engine oils and passenger car motor oils with HDEO accounting for a large portion of the market.
Infrastructural development is a major driver of lubricant consumption everywhere, and North Africa is no exception. Al Kinanny noted a positive forecast for the lubricant industry due to mega infrastructural plans and an improving investment environment. In Morocco, this includes theatres, resorts and shopping malls, as well as the nearly completed Casablanca-Tangier high-speed rail line, the only such railway project being built in Africa.
In Tunisia, the government is heavily investing in ports and industrial zones. One of these is the new U.S. $50 billion Tunisian Economic City.
Egypt is also on infrastructure-building overdrive with the construction of a $45 billion new capital city, two new ports and several other projects in the works. There is also growth in heavy industries, with steel production rising to 567,670 tons in September 2017 from 535,000 tons in August the same year.
In Algeria, the government is forging ahead with infrastructural projects worth 233.7 billion aimed at diversifying its economy from dependence on oil.
These infrastructural projects will swell demand for lithium and calcium complex greases for the cement industry; transformer and turbine oils for the power generation sector; hydraulic and gear oils for road and tunneling machinery; metalworking fluids, hydraulic oils and greases for metal works; marine oils at ports; and various lubricants for increased industrial activity.
While many of the countries in the region are not models of stable democracy, Al Kinanny pointed out that many of their governments are eager to achieve economic stability through trade. He noted that the region has trade agreements with the European Union, the Arab League, the Common Market for Eastern and Southern Africa and the South Africa Development Community. Morocco is also being considered for admission into the Economic Community of West African States.
This means that lubricant players in the region could have access to other regional markets on the continent.
Even though they will not all grow at the same pace, each market has its plusses and minuses. Egypt will continue to be the largest lubricant market in the region, albeit based on Group I oils, as is the case with Algeria. Morocco will lead in terms of quality and standards because of the automotive connection with Europes car makers, resulting in the use of higher-grade oils. Tunisia is not a particularly large lubricant market, so it might not have much influence on the region. But growth is sure to happen as populations expand and urbanize.