Sustainability, and Digital Technologies in Lubricants Industry

Sustainability, and Digital Technologies in Lubricants Industry

 

Finished Lubricants and Sustainability

Sustainability is a megatrend of our time. Between 2020 and 2021, there has been a rush of corporates and governments declaring their intention to become carbon neutral by a given date, anywhere from 20 to 40 years into the future. The requirements of environment, social, and governance (ESG) standards are expected to have a profound impact on the operational and business practices of enterprises worldwide. Coupled with increasing customer demands, companies will need to make full disclosures to investors and financial and credit rating agencies, making carbon neutrality the centerpiece of boardroom agendas going forward. To achieve their sustainability goals, companies not only within the lubricants industry will adopt a variety of operational measures and decarbonization technologies. As these technologies jostle for leadership in different countries and regions, the role that lubricants play will change 

The interaction between the drive to sustainability and the lubricants industry can be classified into three themes. This article will discuss these themes and what opportunities and challenges they present to lubricants industry participants. 

Theme 1:  Reducing the carbon footprint of finished lubricants.

Like all other industries, the lubricants industry is under pressure from governments, its supply chain partners, and consumers to reduce the carbon footprint of its products. Increasingly,carbon footprint isan important criterion for procurement decisions made by automotive and industrial OEMs, government agencies, industrial endusers, and consumers. This focus on the reduction of carbon footprints will only increase with time...

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ON-DEMAND WEBINAR ( Episode 2 )

In Conversation with Kline Sustainability in Energy Industry Advocate Yana Wilkinson

sustainability in energy and lubricants industry

Access our on-demand session with Kline’s VP of Energy, Yana Wilkinson, who will discuss how the fast-evolving theme of sustainability is influencing the decarbonization of the lubricants value chain. During this session, Annie Jarquin, Director at Energy practice and the host, discussed the most pressing and interesting questions with Yana. 

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Beauty Devices: Revealing the Inner Aesthetician of U.S. and Chinese Consumers

Beauty Devices: Revealing the Inner Aesthetician of U.S. and Chinese Consumers

The onset of the coronavirus pandemic forced consumers to adopt at-home beauty regimens to maintain social distancing. Many turned to beauty gadgets to keep up with their normal skin care routines, and to mimic the results they previously obtained in professional outlets. According to our just-published Beauty Devices: Market Brief report, the market for at-home beauty devices in the United States and China was valued at approximately $2.5 billion at the retail sales level in 2020. Their combined growth was 12.2% in 2020, with the U.S. market witnessing its healthiest increase in the past five years. Both markets had similarities in terms of key growth factors, such as the anti-aging category, multifunctional devices, and direct sales. Social media and live-streaming were popular marketing tools that helped bridge the gap between marketers and consumers. In this brief report, we take a look at some of the key developments behind the success of skin care devices during the pandemic.

Download this highlights report to learn about:

  • The fastest-growing skin care concerns
  • New product launches and leading technologies
  • The role of e-commerce and social media
  • Changes in the competitive landscape
  • Key spaces for future growth

To get the full view on this vibrant market segment, refer to our in-depth Beauty Devices: Market Brief  report, focusing on market size and growth, the importance of skin care concerns, product trends and notable new launches, technology landscape, key changes in distribution, and competitive landscape. 

An Emerging Split in the Energy Industry

An Emerging Split in the Energy Industry

 

Sustainability and split in energy industry

The global market scenario in 2020 has highlighted the divide in the oil industry on how to negotiate the transition to low carbon while maintaining profitability. As if the combination of the post COVID-19 demand contraction and the (possibly) permanent shift in consumer behavior relating to personal mobility and work from home were not enough, Europe’s green hydrogen plan and China’s commitment to become carbon neutral by 2060 has put pressure on the global oil companies to lay out plans of their own.

How oil companies have behaved on this front reflects their unique business environment and consumer pressure. Many European oil companies have made commitments on reducing their carbon footprint to net zero or close to zero by 2050. North American oil companies have not made any commitments on sustainability, instead, focusing on incremental reductions in their carbon footprint. This might change with the induction of the new administration. National oil companies (NOCs) of energy exporting countries as well as those of large economies stress that they will continue to focus on oil and gas while ramping up their carbon reduction initiatives. The most visible example of this divide is the recent declaration by leading energy companies on Energy Transition Principles. The declaration was supported by eight energy companies – BP, Eni, Equinor, Galp, Occidental, Repsol, Royal Dutch Shell, and Total, most of whom are of European origin1.

The focus on sustainability has been accompanied with statements on when “peak oil” will occur – an event when oil demand will hit its highest point, and beyond which will be in permanent decline. Many European oil companies project that we are already at peak oil or will arrive at that point in the next ten years or so. In contrast, some NOCs claim that we are quite far from peak oil and the demand growth in Asia and other developing economies will offset any decline in Europe and North America. As if to play the mediator, International Energy Agency (IEA) published its energy outlook which projects that oil demand will grow till 2030 and then flatten till the foreseeable future without a peak. To be fair, one scenario – “Sustainable Development Scenario” puts 2021 as the peak oil year2...

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Personalized Nutrition Gains Momentum

Personalized Nutrition Gains Momentum

Personalized nutrition is one of the top trends in health and wellness. To date, the personalized nutrition market has been dominated by startups and fast-moving consumer goods (FMCG) companies that are experimenting with various technologies and products.​ The vibrant startup scene and active venture capital investors have led to widespread innovation in food technology, and U.S. consumers are generally eager to use the industry’s new offerings. ​This presentation highlights innovative products and companies in this fast-paced market.

Download your copy to learn about:

  • The various tools marketers use to offer personalization
  • Key players in each segment and recent acquisitions
  • New products and emerging technologies                                          
  • The latest developments in dietary supplements
  • Popular ingredient trends that boost consumer demand

 

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Consumer Healthcare: COVID-19 Impacts and Observations Nov 2020

Consumer Healthcare: COVID-19 Impacts and Observations

The unprecedented crisis of the coronavirus (COVID-19) outbreak has affected the U.S. population in profound ways that seem to change daily. From early to mid-March 2020, the country began social distancing policies, with more stringent “shelter-in-place” orders enacted across much of the country by early April. With that, schools, colleges, restaurants, lodging establishments, office buildings, some industrial facilities, recreational facilities, and many non-essential government facilities closed, and a unique recessionary/boon economy (for some) ensued. Much of this patchwork mixture of experiences continues in December as the United States experiences a resurgence of the virus.

How has this impacted Consumer Healthcare (CHC) practices and product sales patterns? What will the future bring? In this short paper, we assess the possible impact on the consumer healthcare market, a space with which both Kline and IRI are deeply familiar, having tracked the industry for decades. For clarity, we’ve looked at the impacts of COVID-19 on the consumer healthcare market, defined as nonprescription or OTC drugs, dietary supplements, and devices used by consumers to manage their health. Get a copy of this whitepaper to better understand:

  • The impact of COVID-19 on public health and the economy
  • The historical perspective: recession and consumer healthcare
  • The current market situation                                            
  • Consumers' behavior in light of COVID-19 
  • The future of the market

 

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Is Lonza’s Specialty Ingredients Divestment the Chemicals Deal of the Decade?

Is Lonza’s Specialty Ingredients Divestment the Chemicals Deal of the Decade?


Lonza’s Specialty Ingredients Divestment
Trade tensions, geopolitical events, and slowing economies caused by the COVID-19 pandemic have had little effect on merger and acquisition (M&A) activities in the chemicals industry this year. The industry experienced a slowdown in organic sales growth across most segments in all regions, yet many companies have taken this time to consider transactions for business transformation. This includes acquisitions to secure growth, generate cash resources, maintain market competitivity, build IP, or restructure their business. This year alone has witnessed divestment announcements such as Lonza’s Specialty Ingredients business and deals closing across the specialty chemicals sector, particularly in the ingredients value chain. Deals have ranged from EQT Partners acquisition of Schuelke and IFF’s acquisition of DuPont’s Nutrition and Biosciences to Cargill’s acquisition of Floratech. Deal multipliers continue to rise, showing no indication of a decline. The current situation has had a mixed impact on the global biocides market. Many markets for biocides such as household, industrial and institutional hygiene (HI&I), personal care, and agriculture are either positively or less impacted, whereas industrial markets such as paints and coatings, marine antifoulant coatings, plastics, and oilfield applications experienced the strongest decline in demand.

Over the last decade, the global biocides industry underwent several M&A activities, including some major ones shown below.

M&A in biocides business

This month, Lonza is set to start the sale process of its specialty ingredients business (LSI) unit. With a reported EBITDA of CHF 300 million (US 323 million) in 2019, LSI is comprised of two business units: Microbial Control Solutions (MCS) and Specialty Chemicals Services (SCS). MCS serves end-use markets including paints and coatings, HI&I, personal care, and wood treatment. SCS mostly offers agricultural and pharmaceutical contract manufacturing, nutritional supplements, and composites.

Lonza decided to divest its LSI division to focus more on its Pharma, Biotech & Nutrition business.  UBS investment bank is leading the sale and claims to have issued information packages on LSI to peers such as LANXESS and Clariant, plus private equity groups. LANXESS and Clariant have been working on strengthening their businesses, having divested Arlanxeo, chrome chemicals, and masterbatches. LANXESS CEO Matthias Zachert stated on an investor call that the firm’s M&A firepower is somewhere between 1 to 2 billion Euros, while a big 4 strategy consultancy claimed it has been approached by 25 private equity firms interested in this deal.

Lonza has a wide portfolio of active biocidal ingredients encompassing several key chemistries across most applications. A market leader in wood preservation, antidandruff agents, biocides for soft foulants in marine coatings, crop protection molluscicides, and HI&I markets, it maintains a strong presence in paints and coatings, metalworking fluids, and oil & gas application segments.

Changes in regulatory frameworks in key regions have been the main driver for the shift in the global biocides market. A rich portfolio of products makes larger players, such as Lonza, more resilient to regulatory changes. Lonza has distinct competitive advantages in a world of increasing requirements for biocides registration, labeling, and packaging.

As biocides is a regulation-dependent business, some of the key actives in LSI’s portfolio are currently under regulatory scrutiny.  High exposure to mature markets, along with expiration of key patents such as ZnPT (zinc pyrithione), could pose potential risks for LSI’s business. Wood protection is gradually shifting toward new, alternative, less toxic, more environmentally friendly wood preservatives. This shift has implications on existing products from large players including Lonza, Viance, and Koppers. These products are banned in Europe and being phased out in North American residential applications. ZnPT is an effective and durable fungicide and algicide for many different applications. It is also the most common antidandruff agent worldwide. ZnPT remains under regulatory review for various applications and faces a high risk of a ban in Europe. A complete ban on ZnPT could have repercussions along the entire value chain, starting from raw material guar supply from Solvay to its key end use in antidandruff shampoos for the personal care majors such as P&G and Unilever. Nevertheless, Lonza’s extensive portfolio, as well as actives under development, mitigates against many regulatory concerns.

Kline believes LSI could take advantage of the robust growth expected from industrial applications in the longer term, leveraging preservation know-how, knowledge of formulated biocidal products, and its strong position in HI&I, especially with the increased demand for disinfection due to COVID-19.

Potential strategics interested in LSI

Reuters speculated that the LSI deal could be worth CHF 3.3 to 3.5 billion, which implies that private equity firms are most likely to secure this deal unless a partnership between a sponsor and strategic is struck—or unless LANXESS considers this portfolio of products a transformational acquisition.

UBS, the sell-side bank, suggested that Clariant, LANXESS, BASF, and Nouryon have synergies with this opportunity. It is of Kline’s opinion that, based on the recent multipliers of specialty chemicals and ingredients, deals may cause strategics to miss out on this opportunity). The LSI acquisition offers a route to a synergistic product/market/capability addition to their existing business portfolio industrial buyers purchase with the goal of ongoing or maintained ownership. Hence, the acquisition decision is based on the fit with their industrial logic and corporate renewal strategy.

Private equity owners are short- to medium-term business developers and transformers, enhancing firm’s value over a given timeframe in order to secure a financially sound exit. Bloomberg reported that several private equity partners active in the chemical industry, such as Bain Capital, Cinven, Advent International, Lonestar, Carlyle, EQT, Blackstone Group, KKR & Co., and Partners Group, could participate in the bidding process.

Given the centrality of the right investment decisions, pre-deal due diligence analyses are to be performed meticulously.

LSI business attractiveness and outlook

Overall, Kline sees Lonza’s HI&I, personal care, and industrial biocide business as a differentiator in the deal due to its value and potential. A handful of products in the LSI portfolio represents a large part of Lonza’s sales, despite its dense portfolio.

Unsurprisingly, hygiene and disinfection products have become a key driver of the biocidal industry during COVID-19. This has significantly increased the demand for biocides in HI&I and personal care applications, where end products include hand sanitizers, surface disinfectants, and antimicrobial soaps. Lonza is a key player in HI&I and other hygiene applications and will take advantage of the opportunities created in this area.

Further growth of LSI could be positively shaped with solution-driven innovations, open innovation programs, and licensing or acquisition of chemistries and technologies.

Kline has been reporting on specialty biocides market activities for more than 50 years. Our experienced international consultants closely follow the ever-evolving market landscape. We are well-positioned to provide comprehensive assessments in the areas of strategy and business development, manufacturing and supply chain, technology and innovation, customer relationships, and M&A support, among others. Our unrivaled market intelligence and competitive intelligence across the chemicals and materials industry was developed over 60 years and helped our customers better position their business growth.

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Urbanization and Industrialization Driving Lubricants Market of ASEAN

Urbanization and Industrialization Driving Lubricants Market of ASEAN


ASEAN lubricants market 2020

The Association of Southeast Asian Nations (ASEAN) is a cooperation among 10 countries (Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) for promoting regional economic and social development. The region has some of the fastest-growing economies, where service and agriculture sectors are important contributors to gross domestic products. Within the agriculture sector, palm oil and natural rubber products are important export commodities. Countries like Thailand, Indonesia, and Malaysia are important automotive manufacturing centers, and Singapore is an important trade hub.

The region is estimated to account for about 8% of the global finished lubricants market, estimated at 41 million tonnes in 2019. In comparison to western countries, lubricants consumers are very price-sensitive, especially in the commercial automotive segment, where use of monograde is still ongoing. Low-quality, mineral-oil-based lubricants are still used in the region and are being sold by local suppliers. Kline’s report, Opportunities in Lubricants: ASEAN Market Analysis, covers lubricants markets of eight major countries in the region: Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Thailand, the Philippines, and Vietnam.

Estimated Finished Lubricants Demand in ASEAN by Country, 2019

ASEAN lubricant demand by country

Total: 3,100 KT

Overall demand for lubricants in ASEAN was estimated at slightly more than 3,100 kilotonnes in 2019. Indonesia accounted for about one-third of the regional lubricants demand due to its largest vehicle parc and large industrial sector. Thailand followed with a share of slightly more than one-fifth of the overall regional demand in 2019. Thailand’s lubricants market is very competitive, with 150 to 170 brands. Singapore was the third-largest market due to its huge appetite for marine lubricants. If marine lubricants are excluded, Singapore’s demand for lubricants will be close to that of Cambodia. The lubricants market in Lao PDR and Cambodia are import-driven, with no significant indigenous capacity for lubricants blending. Even in Myanmar, lubricants demand is mostly fulfilled by foreign suppliers.

Estimated Finished Lubricants Demand in ASEAN by Segment, 2019

ASEAN Finished Lubricants Demand by segment

Total: 3,100 KT

Automotive lubricants accounted for a larger share than industrial lubricants because the region is not as industrialized as western countries. Countries such as Cambodia, Lao PDR, and Myanmar do not have a well-developed manufacturing sector, and their agriculture sector is also not as mechanized as in other parts of the world. Cambodia and Lao PDR do not have an automotive manufacturing base but only a few assembly plants and are largely import driven markets. Myanmar has limited production of passenger cars and commercial vehicles. Indonesia, Thailand, Malaysia, and Vietnam are considered relatively more industrialized than Cambodia, Lao PDR, and Myanmar. Thailand is the largest automotive producer in ASEAN. The Philippines is primarily considered a newly industrialized country, which has an economy in transition, from one based on agriculture to one based more on services and manufacturing.

On further dividing the automotive segment into consumer and commercial segments, the industrial segment appeared to be the largest because of huge demand for marine lubricants in Singapore. The high population of two-wheelers in this region explains why the consumer automotive lubricants segment had a higher share than the commercial automotive lubricants segment.

The total vehicle parc in select ASEAN countries was estimated to range between 250 million and 300 million units in 2019. Indonesia had the largest vehicle population among ASEAN members, and it represented one of the largest two-wheeler markets in the world. Two-wheelers are a key mode of transportation for the lower- and middle-class population across various developing Asian countries. These vehicles are not only used for personal use but also by businesses for providing services such as food delivery, transportation and courier services. In most countries, the population of two-wheelers is more than that of passenger cars, but in Malaysia, the car population exceeds that of two-wheelers.

ASEAN PCMO AND HDMOIn the commercial segment, monogrades accounted for a significant share of total heavy-duty motor oils (HDMO) demand in the eight ASEAN countries in 2019. The old on-highway vehicles, as well as off-highway equipment, are responsible for the significant penetration of monogrades. The most popular viscosity grades of multigrade HDMO in use in 2019 were 15W-40, followed by 20W-40/50 and 10W-30/10W-40. Among these, the leading viscosity grade was 15W-40, but in recent years, commercial vehicle OEMs have started recommending 10W-30/40 for their new vehicle models.

Unlike the commercial segment, demand for multigrades accounted for a higher share than monogrades in the consumer automotive segment. However, monogrades are not eliminated from the market and have significant shares in country markets such as Indonesia, Cambodia, Myanmar, and Lao PDR. The largest viscosity grade category included 10W-30 and 10W-40. Demand for lower viscosity grades such as 5Ws and 0Ws has improved in this region. 0Ws are a niche category and have noteworthy demand in Indonesia, Thailand, and Malaysia, the three largest PCMO consumers in the region.

Industrial Lubricants Demand in ASEAN by Product Type, 2019

ASEAN-industrial-lubricants-demand

Process oil was the largest industrial oil category in the major ASEAN countries in 2019. High demand for process oil is essentially due to a large demand for rubber process oils in Indonesia, Malaysia, and Thailand. Process oil is followed by industrial engine oil, which is closely followed by hydraulic fluids. A large part of industrial engine oil is constituted by marine engine oil, which has high demand in Indonesia, Thailand, and the Philippines. It is also the largest engine oil type in Cambodia and Myanmar. The most significant demand for metalworking fluids comes from Thailand, where a considerable percentage of this demand is coming from transportation equipment manufacturing.

The overall lubricants demand in the select countries in ASEAN is expected to grow at a moderate compound annual growth rate (CAGR) of 2.0% from 2019 to 2029. The growth rate is expected to be higher for the period 2024 to 2029 as the economies would have recovered from COVID-19’s negative impact by 2024; after that, industrialization and urbanization will pick up momentum. COVID-19, which caused prolonged lockdowns, has the ability to push the lubricants market downward by 7% to 17% in 2020 in comparison to the demand in 2019.

Lubricants Demand Forecast in ASEAN by Country, 2019 - 2029

ASEAN-lubricant-demand-forecast-to-2029

Despite a major setback due to the pandemic, the lubricants market in this region is very dynamic and presents strong growth prospects over the forecast period. Growth is expected to be driven by the consumer segment, followed by the commercial and industrial segments. Growing population and urbanization in the key countries will fuel passenger vehicle parc growth. In many countries, the popularity of two-wheelers will also contribute to the stronger growth in the segment. Government regulations and policies, COVID-19’s impact in the short term, consumer purchasing power, government spending on key industries, and international trade and commodity prices are some of the factors that can critically impact industrial and commercial automotive lubricants segments over the forecast period.

The insights from this study are sourced from Kline’s report, Opportunities in Lubricants: ASEAN Market Analysis published October, 2020. To learn more about this market, REGISTER for the upcoming free WEBINAR.

Also, check out studies covering other regions:

Opportunities in Lubricants: Latin America and Caribbean Market Analysis REQUEST WEBINAR RECORDING >>

Opportunities in Lubricants: Middle East Market Analysis   REGISTER FOR A WEBINAR >>

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Global Naphthenic Basestocks Market at a Crossroads

Global Naphthenic Basestocks Market at a Crossroads

Naphthenic basestocks: A vital blending component for several industrial lubricants

Naphthenic article 3

Naphthenic basestocks, classified under the American Petroleum Institute’s (API’s) Group V category, have remained a niche, yet important, basestocks category. Per a recently completed market study by Kline – Global Lubricant Basestocks: Market Analysis and Opportunities – naphthenic basestocks represented around 10% of the global demand in 2019. This market share has remained at an almost constant level over the past decade.

Naphthenic basestocks offer certain advantages including their wide range of viscosities and high additive solubility. This has helped them establish their own demand in industrial lubricants. However, owing to their low viscosity index (VI), naphthenic basestocks are rarely used in automobile applications, aside from greases.

Per Kline’s analysis, the top applications for naphthenic basestocks include rubber process oil (RPO), metalworking fluid (MWF), electrical insulation oil (EIO), and greases. Besides these, naphthenic basestocks can be used in a host of general industrial oil (GIO) applications where VI is not a key consideration. They can also be used in applications like printing inks, spray oils, adhesive and sealants, and explosives, among others.

As stated above, naphthenic basestocks are commercially available in a wide range of viscosities; they range from 35 SUS to as high as 5,000 SUS, providing them with an edge over basestocks that have a limited viscosity range. Furthermore, their high solubility makes them a preferred basestock in applications like MWF and greases, where additive solubility is critical. In EIO applications, naphthenic basestocks are mainly preferred for their good low-temperature performance compared to paraffinic basestocks. In RPO applications, they are preferred due to their non-carcinogenic nature.

Naphthenic article Table

Bearing the brunt of COVID-19

Some of the key applications of naphthenic basestocks, including metalworking fluids and rubber process oils, have been badly impacted due to the COVID-19 outbreak. Automobile production across the world has declined considerably, reducing the demand for MWF, which is one of the key application segments for naphthenic basestocks. Demand for RPO has also declined sharply, as tire sales are down due to the poor automobile sales. Further, naphthenic basestocks are additionally used in processing elastomers, which are widely used in automobiles.

On the other hand, demand for naphthenic basestocks in EIO applications was relatively insulated, providing a cushion to help contain the shock of the decreased demand. Per Kline’s estimates, the global naphthenic basestock market may register a decline of around 10%-15% in 2020, owing to the COVID-19 outbreak.

Potential market opportunities

Naphthenic basestocks are being considered favorably as a substitute for Group I basestocks, which have dwindled in supply over the past decade. As Group I basestocks continually become obsolete for use in automotive engine oil applications and compete against Group II and III basestocks, a dip in demand has forced a lot of capacity to shut down. This created Group I availability issues for applications where Group II and III basestocks were not technically suitable, despite having surplus availability. This void can be easily bridged by naphthenic basestocks.

Globally, the challenges for Group I plants have not subsided. Rather, they face more obstacles than ever, magnified by new developments like IMO 2020 regulations. The COVID-19 outbreak in early 2020 sent global lubricant demand southwards, severely impacting operations of Group I basestocks, which had already been operating at their historically lowest average rates globally. Thus, this demand erosion has resulted in even greater challenges for Group I plants. It is anticipated that the pace of Group I capacity rationalization will accelerate in the future, especially if Group II/II+ capacity additions continue unabated across the world.

Naphthenic basestocks can also be used in formulation with Group II basestocks to mimic Group I basestock properties. This solution, although still in its nascent stage, can greatly solve the issues arising from a Group I short supply in the future. However, this solution will be more palatable to blenders only if it does not require a high cost of reformulation and there is an imminent Group I supply disruption.

Facing challenges of its own

Over the past several years, naphthenic basestocks have cemented their position in several lubricant formulations as a key substitute to Group I basestocks, which, again, have been facing dwindling supplies. Per Kline estimates, the global supply for naphthenic basestocks stood at 3.6 million tonnes compared with a total capacity of around 5.8 million tonnes. This indicates that the global naphthenic basestocks capacity remains underutilized, at just over 60% of average operating rates. Thus, the naphthenic basestocks market has sizeable bandwidth to cater to new demand growth.

Global Naphthenic Basestock Capacity by Region, 2019

Naphthenic article Chart

While opportunities for naphthenic basestocks exist in the market, naphthenics face several challenges of their own, with one of them being the limited availability of naphthenic crude, which limits geographic spread of naphthenic basestocks production. The bulk of the naphthenic basestock production is centered in a handful of countries, including the United States, China, Japan, Sweden, Germany, and Brazil. Venezuela also has some capacity to produce basestocks, but its lone plant has remained non-operational for a few years now. Therefore, naphthenic basestocks do not have a wide geographic production base. Moreover, only a handful of North American and European producers actively participate in the export markets. Much of the production from China and Japan is consumed within these countries. The smaller number of supply options does not sit favorably with blenders, who would like to ensure continuity in availability and plan for unforeseen exigencies and outages in supply.

One major factor recently impacting the naphthenic basestocks market was the restrictions faced by Nynas owing to Venezuela Sanctions Regulations by the United States government. Petrόleos de Venezuela S.A. (PDVSA) had a majority stake in Nynas, resulting in Nynas falling under the purview of these sanctions. This created not only crude availability issues for Nynas, which operates two naphthenic plants in Europe, with a total production capacity of 730-740 kilotonnes per year, but also banking issues, which came bundled with the sanctions. To escape the sanctions, Nynas restructured its ownership by reducing PDVSA’s share to around 15% from the previous 50%. In addition, Nynas has completely switched away from Venezuelan crude as they increased share of other sources in their crude oil mix. This development, involving normalization of operations, is positive for the naphthenic market, as the supply availability prospects are strengthened. During the period of sanctions, several lubricant blenders who used naphthenic basestocks started becoming wary of the looming uncertainty.

Earlier last year, LyondellBasell shut its naphthenic plant in the United States following the expiration of its sales contract with Calumet. The plant had a capacity to produce around 180 kilotonnes per year of naphthenic basestocks. Petrobras, which operates a naphthenic plant in Lubnor, Brazil, with a capacity of 65-70 kilotonnes per year, had been considering selling this refinery as part of its divestment plan. However, the outbreak of the COVID-19 pandemic could delay these plans.

The road ahead

It is widely expected that the global finished lubricant market, after registering a sharp decline in demand in 2020, will gradually inch toward recovery. In fact, the trough created due to lockdowns across the world is well past and the markets have already begun their recovery, though it may take some time before the market demand normalizes to reach pre-COVID-19 levels. Furthermore, the market is replete with uncertainties that may impact the road to recovery. Nonetheless, the long-term market prospects for naphthenic basestocks are stable owing to the anticipated vacuum created by Group I supply reduction and the recovery in finished lubricant demand.

Some applications that are in nascent stages are also being looked upon as potential new growth segments for naphthenic basestocks. One such application is in the production of battery separators. This application specifically holds the key, given the growing thrust on adoption of electric vehicles across the world.

One of the most critical factors for growth in naphthenic basestocks going forward will be the assurance of a continuous supply. To ensure continued growth, naphthenic basestock suppliers will need to make sure that blenders remain confident about this aspect.

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Walking a Tight Rope to Recovery: U.S. Industrial Oils and Fluids Demand

Walking a Tight Rope to Recovery: U.S. Industrial Oils and Fluids Demand


industrial oil market in north america

The manufacturing sector in the United States accounts for a shrinking share of the U.S. economy, a fact that is much rued by observers. The upheaval caused by COVID-19 has been a bitter pill to swallow for many manufacturers, who are now evaluating questions such as: How has U.S. manufacturing been impacted in 2020, and what will be the implications of the current situation in the short-term future? How will this impact the market for lubricants, base oils, and additives? Kline & Company recently completed an in-depth report on the industrial sector of the United States, deep-diving into the top 16 end-use industries in the country that consume lubricating industrial oils and fluids. The study unveils interesting trends that different industrial segments are undergoing in 2020 and the extent of their impact on demand for industrial oils and fluids in the future leading to 2024.

The Great Lockdown crisis of 2020 has impacted different segments of the U.S. industry disproportionately, with some industries experiencing sharper declines than others. The industries that cater to the market with “essential” goods and services continued to operate without much interruption during the lockdown period and performed relatively better than other industries that had hard stops. In all, industrial activity in the United States experienced a profound drop during the first half of 2020, with the average industrial capacity utilization rate plunging to 64%-65% in the months of April and March, from 75% in February. Manufacturing segment capacity utilization rates experienced the most significant decline, dropping to  60%-62% in April and May, dipping even lower than the levels of the year 2009, when the U.S. economy was hit by a severe recession. The consumption of industrial oils and fluids, which typically tracks the level of activity in key industrial segments, is also expected to follow suit.

Drop in Average U.S. Industrial Capacity Utilization Rates in 2020

Drop in Average U.S. Industrial Capacity Utilization Rates in 2020 Source: U.S. Federal Reserve Database

 

2020: An uphill battle for manufacturing industries

Leading oils- and fluids-consuming manufacturing industries in the United States, such as rubber and plastic products, transportation equipment, primary metals, and machinery, experienced a drastic drop in operating rates during the first half of 2020 due to the lockdown directives, social distancing measures, and a contraction in demand. Rubber and plastic products, plus the transportation equipment manufacturing industries, are largely dependent on growth in the automotive market. Growing sales of light trucks, utility vehicles, and commercial trucks have been driving demand for tires, plastic parts, and automotive components in the United States. Some 70%-80% of U.S. styrene-butadiene rubber (SBR) demand, which is the largest commodity elastomer consumed in the country, originates from automotive tire manufacturing. The demand for thermoplastic fabricated products and automotive equipment, such as engine parts, electronics, suspension components, and transmissions, has also remained stable, driven by the transportation equipment manufacturing industry in the country.

However, this changed in 2020, as the COVID-19 outbreak put production facilities on complete or partial halts. Production facilities of the top automotive OEMs in the United States, such as General Motors Co., Ford Motor Co., and Fiat Chrysler Automobiles, remained temporarily closed in March/April 2020 and began operations only by May 2020. Foreseeing reduced consumer demand, some OEMs even switched their production facilities to making medical equipment and devices such as ventilators and face shields. Although the path to recovery is still not visible, industry experts believe that full automotive production will be resumed toward the end of 2020 or early 2021 as the pandemic comes under control. Even as operations are resumed, automotive OEMs will have a full plate of market complexities to manage, such as financial weakness, supply-chain constraints, and reduced consumer demand.

Weakness in U.S. automotive manufacturing is likely to spill over into related industries, such as tire/plastics, thereby translating into a decline in demand for industrial oils and fluids that are used in these industries. Rubber process oils, used in SBR tire formulations, are anticipated to experience a significant decline in demand in 2020 due to a slowdown in tire manufacturing. Beyond 2020, the tire manufacturing industry is forecast to experience growth due to improvement in automotive production rates. Another important trend that will act in favor of tire production growth in the United States is reduced imports of Chinese tires due to intensifying U.S.-China trade restrictions. In the wake of decreasing Chinese tire imports, domestic tire manufacturers have planned capacity expansions, which are expected to bring new production capacities onstream. Continental AG and Nokian Tyres have already completed the construction of their new production facilities in Mississippi and Tennessee, respectively, and have announced plans to start the production of bus, truck, and passenger car tires at these facilities by the end of 2020. Another tire manufacturer, Toyo Tires, has also announced plans to increase its light truck tire production. Growth in tire production capacity, driven by recovery in tire usage in various segments, is expected to foster growth in demand for rubber process oils in the United States in the near future.

The transportation equipment manufacturing industry in the United States, which was already experiencing declining demand from the passenger car segment during pre-COVID months, is now also experiencing a sharp decline in demand from the commercial vehicles segment. The transportation equipment manufacturing industry is viewed as a forerunner for best industry practices for lubricant handling such as fluid conservation and disposal, improved/innovative maintenance of fluids, and chemical management services (CMS). Fast adoption of top-quality synthetic and semi-synthetic fluids to run sophisticated machinery and precision equipment in this industry necessitate the employment of best fluid management practices. This trend is particularly noticeable for metalworking fluids, which account for more than half of the total oils and fluids demand in transportation equipment manufacturing. The demand for synthetic hydroforming lubricants and semi-synthetic cutting fluids is on the rise in this industry, and these high-value fluids are best managed via chemical management systems offered by metalworking fluid suppliers.

Metalworking fluid consumers in the primary metals and machinery manufacturing industries are exhibiting similar trends toward synthetic fluids, albeit at a slower rate. In addition to cost optimization and efficiency enhancement, these industries are driven by the environment, health, and safety considerations, where synthetic and semi-synthetic metalworking fluids win over conventional fluids. The penetration of synthetic general industrial oils, such as water glycol, phosphate ester, and invert emulsion-based hydraulic fluids, is lower in comparison to metalworking fluids due to cost. Gradually increasing penetration of synthetic fluids and better fluid management systems in metals and machinery manufacturing industries have resulted in the scaling back of lubricant demand, even before the COVID-19 outbreak. The deep recession in 2020 and sharp cuts in manufacturing output during the year are anticipated to further cut back the appetite for industrial oils and fluids by these industries.

In fact, demand for industrial oils and fluids in nearly all of these top industries in the United States has remained flat or has been decreasing in the wake of better fluid management and the use of sturdy products with longer service lives. The Great Lockdown recession in 2020 is anticipated to steepen the declines in most of the end-use industries. The economic slowdown in the country is anticipated to impact production output, disrupt supply chains and markets, and have a depreciative impact on firms and financial markets. Another factor that may potentially have a negative impact on industrial productivity in the United States is the ongoing U.S.-China trade war. Unfavorable trade tariffs may reduce exports of goods from the United States as well as imports of raw material from China, thus affecting manufacturing industries.

The year 2020 also saw a drastic decline in global crude oil prices, which dropped by nearly 30% in April. Due to the lockdowns in the United States and other key economies, demand for crude oil dried up in an already existing oversupply situation, rendering global crude oil prices low. Low crude oil prices will negatively affect the oil and gas industry in the United States, particularly by making shale gas extraction economically unviable. This will have a negative impact on demand for lubricants that are used in oil and gas extraction and petroleum refining. Lower crude oil prices are also poised to reduce oil production activity globally, affecting the demand for export-targeted oil field equipment from the United States.

Estimated Demand for Industrial Oils and Fluids by Key U.S. End-Use Industries in 2019 and 2024

Estimated Demand for Industrial Oils and Fluids by Key U.S. End-Use Industries in 2019 and 2024Source: Kline & Company

All is not ill-fated

All, however, is not ill-fated. Some select end-use industries in the United States have been able to keep their heads above the water during the 2020 turmoil. These include food processing, electricity generation and transmission, and chemicals and allied products. These industries are seeing less-severe repercussions of the pandemic since the nature of products/services supplied by them are considered “essential.” Over the next five years, demand for industrial oils and fluids in these end-use industries is forecast to remain flat or decline at slower rates relative to other end-use industries in the country.

The food processing industry is least impacted by the current turmoil, as food is a necessity. In fact, certain food products may even see growth in the short term. For example, nutrient-fortified products and plant-based meat and milk are two areas that are expected to grow over the nextfive years. Demand for lubricants from this industry is thus expected to remain flat, despite the growing penetration of synthetic oils that offset volumetric gains. Major factors that will have a positive impact on the lubricants demand in the food processing sector include population growth, the growing trend of single households, and the growth of new fortified food and beverages products with immunity-boosting characteristics.

The electrical equipment and energy transmission industries, which continued to operate during the lockdown period, experienced less severe declines. This industry closely follows the overall industrial and commercial segments in the United States and is expected to recover at the pace of these segments. The chemicals and allied products manufacturing industry is forecast to experience only a marginal decline in 2020, supported by the spike in demand for packaging, pharmaceuticals, medical equipment, and personal care products and cleaning compounds such as hand sanitizers, antibacterial hand gels, and liquid soaps. Despite a marginal decline in 2020 and a recovery in 2021 and 2022, overall demand for industrial oils and fluids by these industries may not achieve 2019 levels due to the depth of the recession in 2020.

What will be lost while walking a tight rope to recovery?

The U.S. economy, which experienced GDP growth in the range of 2.0% to 2.9% between 2014 and 2019, is destined to experience its steepest recession in almost a century, plunging by 8.0% in 2020 as per International Monetary Fund’s (IMF) latest report. The year saw a near halt of industrial activity, a severe drop in demand, and resulting financial weakness.

The massive downturn that the U.S. industrial segment is experiencing in 2020 will have significant repercussions on the lubricants industry. The first half of the year 2020 saw abrupt and large-scale halting or curtailing of industrial activity, resulting in the total industrial productivity (IP index) plunging by 12.8% in April and manufacturing productivity plunging by a whopping 16% over 2019’s average. This resulted in a sudden drop in demand for lubricating oils and fluids in the U.S. industrial sector, and it is estimated that this market will drop by nearly 12%of the demand volume in 2019.

forecast demand industrial oils USA

Source: Kline & Company, U.S. Federal Reserve Database, and International Monetary Fund (IMF)

The U.S. industrial sector is beginning to show signs of recovery, with the industrial production index growing month-on-month by 5.7% and 3% during June and July 2020. Industry participants are still likely to face several impediments in recovery, such as weak demand and financial issues. As the end-use industries walk the tight rope to recovery, Kline estimates that volumetric demand for industrial oils and fluids in the United States will bounce back to a partial recovery in 2021 and will then show growing signs of recovery in the coming years. This is based on the assumption that the development of a vaccine or treatment for COVID-19 will invigorate businesses back to normalcy. This recovery, nonetheless, will be dampened by other incidental trends such as better fluid management and housekeeping practices, coupled with gradually growing penetration of higher quality synthetic fluids. These trends will be strong enough to dampen volumetric growth in industrial oils and fluids during the next five years, keeping demand in 2024 well below 2019 levels.

This article draws insights from Kline's recently published study: Opportunities in Lubricants: North American Market Analysis (Industrial Oils & Fluids edition), which includes an analysis of Impact of COVID-19 on general industrial oils, metalworking, process oils, and industrial engine oils markets.

Also, check out our recently published related studies:

Metalworking Fluids: Global Market Analysis and Opportunities  REQUEST WEBINAR RECORDING >>

General Industrial Oils and Grease: Global Market Analysis and Opportunities   REQUEST WEBINAR RECORDING >>

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Impact of COVID-19 on Metalworking Fluids

Impact of COVID-19 on Metalworking Fluids


Impact-of-Covid-19-on-metalworking-fluids
The COVID-19 pandemic has led to widespread lockdowns, which, in many countries, have helped to slow the virus’ spreadBut there have been downsides to those efforts: Supply chain disruptionslogistics slowdowns, unavailability of the workforce, and reduced demand have stalled industrial activity globally and impacted many industries—including all end-use industries of metalworking fluids.  

The market for these fluids—which are used in industries that work with metals and employ processes such as cutting, machining, stamping, bending, grinding, and heating of metals, along with lubricating and cooling in different metalworking processes—is governed by several diverse applications. They include transport equipment, machinery, primary and fabricated metals, and more; therefore, the market is largely driven by industrial output and consumer trends. 

Kline & Company has developed a scenario-based approach to analyze metalworking fluid consumption in 2020 under different scenarios. These scenarios have differing assumptions based on the length and severity of clampdowns/lockdowns in 2020 and the subsequent rates of recovery. 

Currently, different countries are at different stages of the pandemic and have adopted distinct countermeasures. Therefore, the pandemic’s degree of impact varies across the separate application segments in different countries. Europe, which accounted for approximately 28% of total global demand for metalworking fluids in 2019, is the worst-hit region. The region’s manufacturing purchasing manager index (PMI) reached an all-time low of 33.4 in April, the month of maximum lockdowns in most European countries. The Americas accounted for roughly 30% of total global demand for metalworking in 2019. Within the region, the United States and Brazil are the most affected countries, ranking first and second, respectively, in the number of global COVID-19 infections as of the end of July 2020Asia-Pacific, the largest consumer of metalworking fluids globally, accounted for approximately 40% of total demand for metalworking fluids in 2019. In this region, China’s economy suffered greatly during the lockdown period; this was reflected in its gross domestic product contraction by 6.8% year-on-year during the January-March period in 2020.

Change in Global Metalworking Fluids Consumption by End Use, 2019-2020

Metalworking-Fluids-Consumption-Change 2019-2020

Globally, the largest impact on metalworking fluids demand has been seen in the transport equipment industry, which accounted for nearly 44% of total demand for these fluids in 2019. The automotive industry, which was already financially stressed from technological upgrades, the need to innovate, and  the development of alternative powertrain technologies including electric vehicles, is the hardest hit by the crisis. The pandemic forced most original equipment manufacturers (OEMs) to temporarily halt production at several of their manufacturing sites globally, leading to reduced demand for metalworking fluids 

The disruptions to industrial production have also negatively impacted metals manufacturing but to a lesser extent than the transport equipment industry. Metals are considered a process industry and were therefore exempt from complete shutdown rules in most countries. However, this has led to an inventory backlog, primarily for intermediate and semi-steel products, because of reduced demand from downstream industries, especially automotive and construction. China was the main contributor to the inventory backlog; as the world’s largest producer of aluminum and steel, it continued to expand output even as the country was in lockdown. 

The machinery and fabricated metal products industries have a highly integrated global supply chain. Therefore, logistics slowdowns due to the pandemic have continued to affect the supply of components and forced production cuts in the industries. 

At the beginning of 2020 and before the COVID-19 crisis, Kline’s forecast showed a nearly stable global metalworking fluids market for the period 2019 to 2024. However, post-COVID-19, the outlook is unclear due to the uncertainty surrounding a possible second wave of infections. The recovery path will depend on each country’s efforts to revive the economy, including the size of stimulus packages and the effective implementation of short-time work programs. China is the first country to come out of the crisis and is working toward full normalization of economic activity. As the world’s second-largest economy, its contribution to global recovery will be enormous. Meanwhile, in July 2020, the European Union (EU) announced a deal among member states for a massive stimulus plan; it will see the EU issue debt of EUR 750 billion (USD 882 billion). 

Overall, the manufacturing sector is expected to show quicker rebound than many other sectors, but supply chain disruptions will continue for the rest of 2020 and perhaps into 2021. Although many OEMs have resumed operations, a quick rebound in production is unlikely, as workers’ safety protocol compliance, plummeting demand, and underutilized capacity are impacting production levels. Additionally, lower confidence in the economic outlook is expected to outlast the crisis, making consumers more cautious about discretionary spending. 

In addition, trends such as better housekeeping, recycling, use of longer-life metalworking fluids, and other technological changes are expected to further slow down the demand growth of metalworking fluids globally.  

In the long term, the COVID-19 crisis is expected to give a push toward greater innovation and displacement of manual labor by automation and digitalization across industries. It is also expected to further strengthen the focus on health and safety in various industries.  

This article draws insights from Kline's recently published study:  Metalworking Fluids: Global Market Analysis and Opportunities, which includes an analysis of Impact of COVID-19 on Metalworking Market.

To learn more about the global Metalworking Market and the impact of COVID-19, request access to our recently held webinar.

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