109 lube 9/5/12 17:15 page 20 lube-tech · automotive oils (such as engine oils, gear oils and...

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Lube-Tech No.82 page 1PUBLISHED BY LUBE: THE EUROPEAN LUBRICANTS INDUSTRY MAGAZINE

Sustainability… and the Global Lubricants IndustryApu Gosalia, FUCHS’ Head of Global Strategic Marketing and Chief SustainabilityOfficer presented the following key note paper at the recent 16th ICIS World BaseOils & Lubricants Conference held in London, that considered what had changed inthe global lubricants market. His paper covered the process and value chain ofmarkets, manufacturers, mergers and finally some new movements that are alsoaffecting the worldwide lubricants business: Sustainability and Resilience.

MarketsGosalia began by reflecting that threeyears ago in February 2009, when he lastspoke at ICIS, most of the world wasright in the middle of the economic andfinancial crisis and at the beginning of aremarkable year for the worldwidelubricants industry too, as it turned outto reveal the lowest level of globallubricant consumption ever in 40 years,since FUCHS started to record lubemarket data, trends, etc.

Since then, a lot of things happened...

Gosalia started by looking at the global andregional lubricant market developments.

The global lube market volume was ataround 36 million tons at the turn of themillennium and more or less quite stabletill the year 2008. Then, lubricantsdemand plunged by more than 10%year-on-year on a worldwide basis to justaround 32 million metric tons in 2009,some regions – especially Europe – werehit much worse. 2010 saw only a partialrecovery in light of the partly unexpectedrapid economic growth, but not quiteback to the old level.

FUCHS believes 2011 was up by about2% over that, so overall the market wasback to around 35 million tons, i.e. tothe level of demand last seen in 2003.

However, Gosalia does not believe thatwe will see the peak numbers of years2006/2007 again short term.

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Lube-TechThe 2% year 2011 growth in lubeconsumption on a regional basis camefrom the emerging markets of Asia-Pacific and Latin America, where demandincreased by around 3% for each region.The 3 BRIC countries in these 2 regions(China, India and Brazil) were the growthdrivers once again.

The remaining regions, including themature market of North America,increased by around 1% over 2010,except for Western Europe, wheredemand more or less stagnated.

With this difference in lube consumptionof just a little over one million tonsbetween 2000 and 2011, one couldthink that not much happened over a10-11 year time frame. But in fact, whenthe underlying regional lube marketdynamics were looked at, the changeswere enormous in terms of quantity andquality.

The Asia-Pacific region together with theRest of the World (ROW) accounted forlittle more than 1/3 of global volume in2000 and now makes more than 50% ofthe total volume, as a result of growingindustrialisation and motorisation andconsequently higher consumption. Themature markets Western Europe andNorth America experienced a continuous

move to the use of higher qualitylubricants with longer oil drain intervalsand this produced lower consumption, asa result of these efficiencies.

Europe and the Americas lost in equalrelative terms, what Asia-Pacific and theROW gained with regard to lube volumeconsumption. Today, the Asia-Pacific

region, sharing 41% of global demand,consumes twice the lubes per annumthan North America does, with a share ofabout 20%.

Even more interesting was the fact, thatNorth America‘s lube consumption per-capita of 20kg was still twice as much asWestern Europe‘s 10kg, which of coursewas the result of a quantity vs. qualityissue. Over all, the world consumed 5kgof lubricants per-capita in 2011, in spiteof the aforementioned above averageper-capita consuming regions, becauseAsia-Pacific and Africa, who representnearly half of the global lube market, stillhave a per-capita demand of below 5kg.

Therefore Gosalia said it made sense tolook deeper in to these regions on acountry-specific basis.

The ranking of the top 20 lubricantcountries, which make up close to 3/4 ofthe worldwide lube consumption interms of volume, was headed by Chinaand the US, together already accountingfor 1/3 of global demand and switchingpositions since 2009, neck-and-neck withroughly 6 million tons of lube demandeach.

In terms of per-capita consumption, theUS was the second largest single marketwith the highest per-capita consumption;

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each inhabitant consumed 20kg oflubricants in 2011. Whereas, China asthe largest market in the Top 20 has thesecond lowest per-capita consumption withonly 5kg of lubes consumed per person.

Gosalia considered that this showed the growth potential, that lies in a countrylike China, although it is not expected toever reach the US’ per-capita demand, asquantity and quality growth at the sametime ‘work against each other’. Instead,

China has already started its transition tobecome a mature market and a moreprobable model would be that it willreach Europe’s overall lube consumptionof around 9kg per person. Extrapolatingthis, sometime in the future China’s totallubricant market will reach 12 milliontons, while Europe has no potential forvolume growth any more. Here thegrowth will be in quality, not quantity, asthe region, especially Germany, is atechnology driver.

By contrast, Turkey (number 20 in the2010 ranking) has enormous potentialand was the hidden giant of Europe.Among the top 20, it was the onlycountry that climbed 2 positions up inthe ranking and achieved the highestgrowth in relative terms with 7% in2011.

The breakdown by product groups in thepast 10 years only slightly changed, with56% of all lubricants still going intoautomotive oils (such as engine oils, gearoils and transmission fluids), whichcontinue to be the prevailing productgroup and largely dictate what will beavailable (or not) for making otherproducts. Gosalia stated that industrialoils account for 26% of the total, withthe rest comprising process oils,lubricating greases, metalworking fluidsand corrosion preventives.

Manufacturers and MergersAccording to a FUCHS study conductedseven years ago, the structure of theglobal lubricants industry changed signifi-cantly between the mid-1990s until2005.

Gosalia went on to say that the numberof manufacturers decreased by close to60%, in nominal terms by around 1,000players from around 1,700. This has leftjust over 700 market participants at theend of 2005. The consolidation andconcentration proceeded more vigorouslywithin the small-sized and independentlube manufacturers sector, whosenumbers halved between 2000 and2005, to around 600 players, down fromaround 1,200 at the beginning of themillennium.

At the end of 2005, the top 10 manufac-turers still held around 50% of theworldwide lube market, while the rest ofmore than 700 manufacturers shared theother half.

The global Merger & Acquisition (M&A)activity in the lube industry (by numberof deals) increased from 2005 till its peakin the year 2007 and then declined till2009, but improved to reach the pre-crises level of 2008 again in 2010,however not yet the peak level of 2007.

In 2011 FUCHS counted 15 deals in theglobal lubricant industry, just 3 less than

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in the peak year 2007. M&A activitieschanged the ranking of the top 15lubricant manufacturers over the years. Highlighted below are some of the majorshifts between 2000 and 2011:1. EXXON and SHELL switched leading

positions (SHELL acquired e.g.PENNZOIL, who were ranked 6 in 2000)

2. FUCHS maintained the top position aslargest independent lubricantsmanufacturer in the world over thepast decade and gained 3 positions inthe top 15 ranking of all global lubeplayers, including vertically integratedMajors, and made it into the Top 10.

3. PERTAMINA and PETRONAS newlycame into the top 15 ranking, whileAGIP and REPSOL left it (the lattereven before the government inArgentina decided to nationalize YPFas happened recently, in whichREPSOL once owned 57% and nowonly has a 6% stake).

Gosalia said that there was anotherinteresting phenomenon in 2011 orcould it be called a new trend? He wasreferring to demergers, spinoffs, splitsand separations of Majors on the oneside and consolidation, internal mergersand acquisitions on the other. It seemedthat the Majors were reorganising andrefocusing either on upstream or onlubricants again, which both will make thesupply situation and the competition fiercerand life not easier for the Independents.

Regarding spinoff, split and reorgani-sation, there were 3 examples in 2011:

It will be interesting to see, how thesedevelopments proceed in 2012 andbeyond.

SustainabilityMoving on through the process andvalue chain, Gosalia had talked aboutMarkets, Mergers and Manufacturersand then highlighted Movementstowards Sustainability and Resilience.

He took the examples on mergers,consolidation and integration intodownstream and explained that theSustainability megatrend presented greatopportunities and challenges forproducers who were seeking to enhanceand diversify their downstream chemicalsbusinesses.

With regard to consolidation, internal merger and external acquisition, there areanother 3 examples of Majors from 2011/ 2012 respectively:


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The United Nations designated 2011 asthe International Year of Chemistry anddeclared 2012 the International Year ofSustainable Energy for All. He askedwhether Chemistry and Sustainability arecomplementary. Gosalia believed thatthe answer was YES!

He went on to define the termSustainability, its actual origin and root ofexpression.

The idea of sustainable development wasborn in 1713, when Carlowitz edited hisfirst book on forest sciences. As forestrythinks in long term dimensions ofgenerations, the Carlowitz base law onongoing use of resources was the centralidea of the concept of sustainabledevelopment.

How have we converted Sustainability foruse in the lubricants world?

Lubricants make a contribution to thesparing use of resources and thereby tosustainability. Lubricants have the task ofreducing friction, which in turn reducesthe amount of energy input required andalso saves emissions. Lubricants also havethe task of wear protection. This extendsthe service life of equipment and savesresources.

Here we have the connection betweenChemistry and Sustainability! Deliveringsustainable products was something thechemicals and lube industry has done formany years, but the benefits are notalways fully appreciated.

There are many external and internaldrivers that benefit from adoptingsustainability. From the customer and

investor side companies are more andmore seeing a demand for beingsustainable in economic, ecological andsocial terms along the process and valuechain of their businesses. It’s about makingthe entire value chain more efficient, moreeffective and more transparent – i.e. withless environmental impact.

This means developing products thatpromote sustainability across their entireproduct life cycles, by deliveringeconomic benefits and improvedperformance, manufacturing them in anenvironmentally responsible and costeffective manner and marketing them tomaximise their value to customers.

Not forgetting, the social challenge, i.e.that while producing products in asustainable way, paying attention toemployees’ security and needs and givingsomething back as a ‘good citizen’ to thecommunity at the production location,too (= Corporate Citizenship).

Consumers today want to know not onlythe immediate sustainability benefits ofthe products, but also whether theproducts were made in an environ-mentally responsible way. To provide trulysustainable products, companies mustalso further demonstrate tangiblebottom-line benefits, as environmentalbenefits alone are not enough forconsumers. If something was just goodfor the environment, but it costs moreand doesn't perform so well for thecustomer, that product would not survivefor long. It won't be sustainable.

In a nutshell:In the past companies needed to takecare of the 3 P’s, which were: ‘Profit,Profit and Profit’ in a sustainable manner.

Nowadays it is still the 3 P’s, but theyrather stand for: ‘Profit, Planet andPeople’, summarising the 3 dimensionsof sustainability, i.e. economic, ecologicaland social aspects.

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There are 3 escalating steps thatcompanies can use to approachSustainability:1. Greenwashing: often used to

manipulate popular opinion tosupport otherwise questionable aims,i.e. when a company or organisationspends more time and moneyclaiming to be ‘green’ throughadvertising and marketing thanactually implementing businesspractices that minimise environ-mental impact. They promote theperception that organisational aimsand policies are environmentallyfriendly – whether it is to increaseprofits or gain political support –although in fact they are not –according to Gosalia, not the rightapproach.

2. Sustainable Corporate Control: toGosalia, the most realistic approachto start with, including steering,standardisation and improvement ofexisting sustainable tools in all 3dimensions.

3. Sustainable Enterprise: equalconsideration of all 3 dimensionsacross the entire process and valuechain of the business, includingsuppliers, etc. This can be consideredto be an honourable target at theend, but maybe difficult to achieveright from the beginning.

ResilienceRegarding Resilience – converted to thelubricants industry – Gosalia explainedthe necessity to search for alternativesecondary supply sources of rawmaterials, in case of a catastrophic event(e.g. Fukushima 2011) or the ability toadapt to a changing environment (e.g.changes in the base oil landscape, withGroup I capacities going down andGroup II/III availability increasing).

“We cannot predict the direction ofthe wind, but we can set our sail inthe right direction” (Seneca)

Outlook: Markets, Mergers &SustainabilityWith regard to global lubricants demand,Gosalia stated that we are living inchallenging times again.

The developments in 2011 reminded us ofwhat occurred in 2008, a strong first halfand then the downturn. FUCHS expectsa volatile market development in 2012.

The regional lube market dynamics ofthe past ten years in terms of quantityand quality will continue. The changingraw material basket of additives and baseoils within finished lubricants, as well asthe changing quality of base oils usedwill influence the lubricants producedand consumed and vice-versa.

With no solution yet found for theparalysing Euro Zone financial crisis, theEU based industries and others remain ina challenging situation. Looking at thepolitical instabilities in the Middle East,Gosalia asked, whether we could reallycall this lube market region sustainable?

From a lube market perspective, it seemsthat sometimes people always thinkabout the emerging markets of India andChina in the Asia-Pacific region, butforget that there was a mix of maturemarkets too, with e.g. Japan andAustralia. Europe and the Americas areoften underestimated, but they showsustainable growth in quality and alsopartly quantity for their Eastern andSouthern parts respectively.

Spinoffs, demergers and separationsaccounted for nearly 40% of M&Aactivities in the US in 2011 and increasedby 40% on 2010. Consolidation in theadditives arena also continues, andmakes it more difficult to manage risk byspreading it across several suppliers. Forexample, we have seen BASF merge withCIBA and then with COGNIS. So fromthree suppliers we now have just one.That's not so good for the Independentsfrom a supply point of view.

Sustainability may sometimes sound likea buzzword, but it will remain a drivingforce in the lubricant industry.

And for that industry, this means it's nolonger just about what, but how wemake lubricants.

Gosalia illustrated his view on necessaryfuture sustainability thinking, byconcluding his presentation, using an oldquote from Antoine de Saint Exupérywhich he sees as still valid and very muchup to date: “We do not inherit theearth from our parents; we borrow itfrom our children”

Rod ParkerEditor, Lube Magazine

LINKwww.fuchs-oil.de


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