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Lubricants
Lubricants
Europe
35%
North
America
28%
Asia is the third largest market for lubricants in the world and is expected in future to grow at
a faster rate as compared to other developed markets. Asias share in the world lubricant
market has increased from 22% in 1993 to 25% in 1998. The per capita consumption of
lubricants in different countries is shown below:
Country
America
Europe
China
India
Per Capita
Consumption (Kg)
31.0
14.0
2.0
1.0
International Consolidation
The global lubricants industry consists of more than 1700 players of which less than 2%
control around 70% of worldwide sales.
The years 1998 and 1999 have witnessed a number of mergers in the oil industry. These
included the three largest mergers in the petroleum industry in recent times. In late 1998
British Petroleum Plc, UK merged with Amoco Corporation, USA followed by the merger of
Total SA, France, with Petrofina, Belgium. The last merger was that of Exxon Corporation,
USA with Mobil Corporation, USA, which created the worlds largest publicly traded oil
company. Though the major merged entities are mainly petroleum or energy companies, they
are also large players in the lubricants industry. Exxon was the worlds largest base oil
manufacturer, while BP, Amoco and Mobil also had strong lube operations. These mergers
have changed the structure of the industry significantly. The latest consolidation specific to
the lubricants industry has been the acquisition of Burmah Castrol Plc, UK, the worlds
largest player in the consumer (retail) lubricants segment by BP Amoco Plc, UK.
The mergers have further concentrated a large part of the world lubricant market in fewer
hands. Additionally, most of the merged entities are also large suppliers of base oils
worldwide. Hence, the mergers have further concentrated this market, with majors like
Exxon, Mobil, controlling the base oil market. This is increasing the volatility in the base oil
supply and hence, price.
Further consolidation is expected in the global lube industry, especially as independent
lube manufacturers would be affected by the sharp rise in base oil prices, following the
increase in crude oil prices.
Technology Developments
Automotive engineering technology has improved significantly in the past few years, with a
corresponding impact on the improvement of lubricant quality. Improving engine and
lubricant technology has resulted in the decline in the lube to fuel ratio1. Additionally, there
has been a demand from both the OEMs and the customers for better quality lubes with longer
life, better properties and lower deposit formation, meeting the stringent emission standards
required.
A critical requirement for the manufacture of high quality lubricants is the quality of base oil
used. Limitations on the physical properties of Group I base oils in various products is
expected to result in an increased demand for Group II/III base stocks. Group III base stocks
can be manufactured only by newer processing technologies like hydrocracking combined
with other processing stages like hydro-isomerisation, iso-dewaxing and catalytic dewaxing,
which would require additional investments from the lube refiners. Group III base stocks will
also facilitate compliance with the API P 9 emission standards scheduled for 2002. It is
estimated that by 2005, 40% of base oils worldwide will be hydrocracked. The new plants
require high investment costs, but can make base stocks from a broader range of crudes,
including crudes with high sulphur content.
The group II/III lube base oils would cost more than Group I base oils. Hence a shift from
Group I to Group II/III base oils would put further pressure on the margins of lubricant
manufacturers.
Indian Scenario
India is the sixth largest lubricant market in the world, with a consumption of around 1.12
million KL in 1998-99 (an effective market size of Rs. 55-60 bn.) as against an installed
capacity of 1.6 million KL and has grown at a CAGR of around 7.0% over the period 1993 to
1998. However, with the industrial downturn and also slower growth in the automobile sector,
the growth of the industry has slowed down to around 4.0% in the last few years.
Till 1993, the Indian Lubricant industry was totally controlled by the Government, with the
Oil Co-ordination Committee (OCC) controlling all aspects of the Industry. Thus, the
industry was dominated by the oil Public Sector Units (PSU) - Indian Oil Corporation
Limited (IOCL), Hindustan Petroleum Corporation Limited (HPCL) and Bharat Petroleum
Corporation Limited (BPCL). Castrol was the only major private sector player in the industry.
The market shares of the key players in the industry as in 1998-99 is given below:
Tide Water
4%
Gulf Oil
6%
Elf
3%
Others
6%
IOC
34%
Castrol
19%
IBP
2%
BPCL
8%
HPCL
18%
The lubricant industry in India can be broadly classified into two segments - Automotive
Lubricants and Industrial Lubricants, with automotive lubricants accounting for over 60 % of
the total lubricant market.
The automobile lubricant market has grown at around 4% from 1993-94 to 1998-99, with the
commercial vehicle segment accounting for about 70% of the total consumption of
automotive lubricants. Indias per capita consumption of automotive lubricants is low at
around 1 Kg per annum on account of the low penetration of automobiles in the country.
India has the second largest railway network, fifth largest mining industry and is the twelfth
most industrialised nation in the world. Hence, industrial lubricants account for about 40% of
the total lubricant market in India and have grown at a CAGR of 13% from 1993-94 to 199899.
Recent Trends
Increasing Industry Competition
In 1993, the Government liberalised the lubricants sector and announced a number of
regulatory changes. These included
The deregulation of the lubricant industry has had a severe impact on the structure of the
Indian lubricants market. Lubricants have the highest margin among refined petroleum
products. Companies earn between 20-30 times more from selling lubricants than other
petroleum products. Such a lucrative business encouraged foreign majors like Shell, Exxon,
Mobil, Caltex, Elf etc., to enter the Indian market. Currently, the industry is highly
fragmented with over thirty players as compared to the five in 1993. The share of public
sector companies has declined from 90 % in 1991 to less than 70 % in 1999. The change in
the market share has been predominantly on account of rapid developments in technology,
marketing, and distribution strategies of companies.
Base oil is a heavy end. Hence, any refinery producing base oils would also produce a higher quantity
of heavy ends and would also need to use heavy and waxy crudes. Gasoline maximisation is through
the use the of sweet, light crudes and would not produce higher quantities of heavy ends. Hence, a
refinery producing base oil would also need sufficient secondary processing facilities to meet gasoline
requirements.