The Impact of COVID-19 on the Finished Lubricants Industry in Brazil

impact of Covid 19 on Brazilian lubricants marketIntroduction

This article aims to address the impact of COVID-19 on automotive and industrial lubricants market in Brazil. Our analysis was conducted on each sector of the lubricants industry and considers three scenarios based on the duration for total lockdown or partial social distancing in the different sectors of the economy in Brazil. Considering that this crisis is still progressing and policies and information change daily, if not every hour, the results of the scenarios will be updated according to any change in facts.


Brazil is the sixth-largest lubricants market in the world with more than 3% of global demand in 2019, behind the United States, China, India, Russia, and Japan.

Brazil consumed more than 1.25 million tonnes (MT) of automotive and industrial lubricants in 2019; pre-C-19, projected demand growth was between 1.5% and 2.0% per year over the next 10 years. The pre-C-19 forecast was based on a scenario of economic recovery in the country after two years of deep recession in 2015 and 2016, in continuity with a slow recovery started in 2017. The economic recovery was driving the renewal of the automotive fleet, a factor that was absent during the recession. The economic recovery was also driving increased usage of the automotive fleet and a recovery of industrial activity. On the other hand, factors such as an increase in the use of better-quality lubricants, such as semi-synthetic and synthetic with lower viscosity; modern-designed engines and other automotive parts; and the improvement in maintenance practice (both in the automotive and industrial sectors) were lengthening the interval between lubricant changes. The net impact of these factors, pre-COVID-19, was expected to generate volumetric growth between 1.5% and 2.0% per year. In addition, the value of the industry was expected to grow above this range, as the product mix became progressively more premium, more synthetic, of lower viscosity and of better quality—and therefore, with a higher added value.

Brazil’s Response to COVID-19

The number of COVID-19 cases registered in Brazil (more then 584,000 cases have been confirmed in the country on June 3rd) represents 2,752 cases per million inhabitants, triple the global average of 846 cases per million. The geographical distance and time lag in the onset of the crisis in the country allowed Brazil to initiate the policy of social distancing at earlier stages of the pandemic based on the experience of European countries. However, the approach of winter has intensified the occurrence of new cases and makes it clear that the peak of the pandemic is yet to come.

On March 20, the Brazilian State recognized a “State of Public Calamity” due to the pandemic, allowing budgetary flexibility and triggering a series of protective measures by regional and local governments. Among these measures, those related to social distancing stand out. They include the suspension of face-to-face classes in the entire public and private school system; suspension of religious services in addition to activities considered non-essential, such as artistic events, concerts and sporting events; the closing of cinemas, theaters, museums and parks; and the closing of bars and restaurants, gyms, sports clubs, and shopping centers. The exceptions are food and medicine distribution networks and stores, as well as fuel service stations.

The Brazilian government decided to provide resources to the health sector, amounting to approximately USD 10 billion (BRL 50 billion), to fight the epidemic. This included the purchase of test materials, the purchase of personal protective equipment (PPE), and the purchase of respirators, among other things.

For citizens, the government provided emergency resources directed specifically toward informal and low-income workers. These included a monthly payment of USD 120.00 per worker for a period of three months; USD 200 million in resources for the payment of electricity bills for low-income citizens; advance payment of the 13th salary for retirees (an additional salary that is normally paid in December); and subsidized personal credit from government-controlled banks.

For companies, subsidized credit lines were made available by government-controlled banks mainly to finance working capital (such as paying employees and suppliers but not exclusively), in addition to the postponement of tax payments and resources for payment of wages to infected workers for 15 days. The government also allowed flexibility of labor legislation to allow a reduction in working hours and a partial reduction in wages to avoid dismissals. In return, companies receiving benefits are committed to not making layoffs to adjust costs.

Social distancing has severely impacted the informal sector of the economy, although the initiatives listed above, if properly implemented, will help control the impact on this sector and preserve people’s livelihood to some extent. On another front, the measures are aimed at preserving formal jobs. In any case, the impact on the economy is estimated at a 6% contraction in GDP for 2020.

Approach and Analysis

In order to estimate the quantitative impact of the C-19 pandemic on the lubricants volumetric demand  in Brazil in 2020,  our assumption is that the C-19 crisis will affect each segment and sector differently and thus its ability to operate as normal as possible in 2020.

The methodology essentially analyzes four stages of the C-19 crisis in 2020:

  • Stage 1 or Pre-Crisis
  • Stage 2 or Lockdown
  • Stage 3 or Recovery
  • Stage 4 or Post-Crisis

Depending on the stage 2 and 3 duration in number of weeks and the degree of recovery of demand for lubricants in stage 4, three different scenarios have been developed that generate a range of views on the downturn in the automotive and industrial lubricants market in Brazil that can be expected in 2020.

In Brazil, the impact on the lubricants industry comes from two main drivers, both reducing demand:

  1. The policy of social distancing—detailed above—resulted in a profound reduction in urban mobility and vehicle use. Consequently, this caused a decrease in the consumption of fuels and lubricants—in this case, predominantly impacting passenger vehicles.
  2. The sudden reversal of expectations regarding the performance of the economy, growth prospects, and job offers generates a level of uncertainty among consumers and industry managers that primarily impacts the durable goods sectors—automotive and white goods—impacting the course of recovery in the use of installed industrial capacity. This, in turn, impacted the consumption of industrial lubricants. The goods transport sector was also affected, disturbing the demand for automotive lubricants in the commercial vehicle segment.

Our expectations indicate a period equivalent to between seven and eight weeks for social distancing across the country and a period between 13 and 14 weeks for recovery to normal activities. Therefore, these scenarios were constructed:

Scenarios - Stages Duration in Weeks

Stage 1 – Pre C-19 Stage 2 – “Lockdown” Stage 3 – Recovery Stage  4 – Post-crisis
Scenario 1 12 7 13 20
Scenario 2 12 8 13 19
Scenario 3 12 8 14 18

Based on our knowledge of automotive and industrial sector dynamics, we estimate the negative impact of the C-19 crisis on the operational levels in each of the 32 sectors relevant to the consumption of automotive and industrial lubricants in Brazil and thus produce three different scenarios for demand retraction in 2020.

Lubricants for Passenger Vehicles

The lubricants consumer for private passenger vehicles (PVL) in Brazil primarily has a “do-it-for-me” profile, and independent workshops and service stations represent more than 50% of the demand in the PVL segment.

Estimated Operating Level by Lubricant Distribution Channel for the PVL Sector During Stage 2’s Lockdown

private passenger vehicles (PVL) lubricants in Brazil

Distribution channels suffered different impacts due to the implementation of social distancing.

  1. Service/fuel stations are considered an essential service and are therefore operating as defined by ANP-National Oil Agency for at least six days a week, 12 hours a day.
  2. Independent workshops and quick lubes are not regulated but are operating aligned with existing demand.
  3. In many cases, vehicle franchise dealers have closed their doors, since sales of new vehicles dropped by around 75% between February and April; franchised workshops are also operating with limitations.
  4. Supermarkets and hypermarkets are working normally.
  5. Auto parts stores are operating in line with existing demand.

The main impact of social distancing on the PVL lubricants market comes from the suspension of face-to-face classes and non-essential activities. This measure, inevitable in the context of the pandemic, caused an estimated reduction of more than 60% in fuel consumption between February and April (April data is not yet official). The correlation between vehicle use, fuel consumption, and lubricant consumption is strong and more impactful in the case of lubricants, since the oil drain and change can be marginally postponed without significant damage, as opposed to fuel supply.

Thus, the channels that are regulated to be functioning—service stations and supermarkets— suffered less, and the unregulated channels that adjust to demand have had, until now, a reduction in business of around 50%. The “factory-fill” significantly decreased with the sale of new vehicles—with an approximate reduction of 75%—in this period of social distancing. In this context, we estimate the reduction in PVL demand to be almost 50% during the period of social detachment; the return to normalization may see demand return to 80% and 90% of the pre-crisis level. The legacy of the work-from-home practice and usage of virtual transaction channels will likely be permanent, leading to a less-than-full recovery. This will result in a PVL demand reduction of between 16% and 22% in 2020 in relation to the demand verified in 2019.

Commercial Vehicle Lubricants

The commercial vehicle lubricant (CVL) market in Brazil is more than 80% dedicated to highway vehicles and less than 20% to off-road equipment. This segment is much less impacted by the “stay-at-home” social distancing policy than the PVL sector, since the transport of products specially dedicated to supplying urban regions—as well as the movement of products for export—remains essential.

Estimated Operating Level by Lubricant Distribution Channel for the CVL Sector During Stage 2’s Social Distancing

commercial vehicle lubricant (CVL) market in Brazil

As observed in the PVL segment, in the case of commercial vehicles, the expected impact is differentiated by sector.

  1. The most impacted segments are related to passenger transport such as bus fleets and vehicle rental, which represent almost 25% of CVL consumption and should have activities reduced to less than half of their normal level.
  2. Sectors related to cargo transportation—carriers and private fleets of companies contracted to transport products that represent around 55% of CVL demand—are expected to suffer demand contraction, losing  30% to 40% on average in the period of social distancing, especially supported by urban supply and exports logistics.
  3. In the case of off-road, the mining and construction sectors should experience a similar impact, losing 30% to 40% of expected demand.
  1. Construction due to the cooling of consumer and business confidence, reducing the demand for new investments
  2. Mining due to retraction in sectors aimed at the domestic market such as aluminum, cement, and iron ore supply to local steelmakers4. Agriculture, about 6% of the volume of CVL, should be the least-impacted sector since it is essentially defined by external demand, and the level of activity is already defined by the 2019 crop area. Impact on the next harvest depends on international expectations for 2021, which in general are expected to recover to pre-C19 activity level. In agriculture, the estimated retraction is limited to about 10% on the expected demand level in the period of mobility restriction.In such context, lubricant manufacturers must intensify their efforts to provide services and technical support to maximize the utilization of the fleet and reduce maintenance costs to retain customers.For the CVL sector, a decline in lubricant consumption of almost 40% is expected during the period of social detachment. The return to normalization should recover between 85% and 95% of the pre-crisis demand level due to the reduction in economic activity that is expected to continue impacting the sector at least until the end of 2020. As a result, the estimated decrease in demand for lubricants for the commercial vehicle sector in 2020 ranges from 10% to 16% in relation to the volume verified in 2019.

Industrial lubricants

The demand for industrial lubricants (IND), including process oil, spread across 14 industry sectors, accounts for approximately 35% of the total 1.25 million tonnes finished lubricants market in Brazil in 2019.

Estimated Operating Level by Industry Sector During Stage 2’s Social Distancing

impact of Covid 19 on indsutrial lubricants market in Brazil

The four main sectors in terms of lubricants consumption in Brazil—plastics and rubber, offshore oil production, mining, and auto parts—account for more than 50% of industrial lubricants demand and are expected to lose 30% to 45% on the expected  level of demand.

  1. Plastics and rubber: This segment includes mainly hydraulic oil for plastic injection molding machines used in the production of parts and packaging for a number of sectors of the consumer industry, including food, beverages, auto parts, durable goods, and others and process oil for the production of rubber parts, especially tires and hoses for the automotive industry. This segment is greatly impacted by the reduction in the production of passenger vehicles and durable goods, which are quite sensitive to consumer confidence. The impact on this sector during the period of lockdown is estimated to be a 40%-45% reduction on the expected volume.
  2. Offshore oil and gas production: The oil industry is being hit hard by the C-19 crisis with a reduction of mobility and consumption of fuels. Such retraction is estimated at approximately 30% to 35%, impacting the consumption of inputs on platforms including lubricants for engines and generators. The estimated lubricants consumption retraction ranges between 30% and 35% in the weeks of social distancing.
  3. Mining: This sector is impacted by the reduction of the national industrial activity, especially the slowdown of the national steel industry. In addition, much of the iron ore produced in Brazil is exported, and its retraction is linked to the dynamics of the international market, especially China. The Chinese steel industry suffered a 12% retraction in February compared to the average level of 2019, but by March it already recovered by 5%. For minerals associated with construction, such as cement production, limestone, gravel, the impact is more significant. Since March, the activity level in the construction industry was 50% below the historical average and around 30% to 35% below the average in 2019. The estimated retraction in lubricants demand in the mining sector is expected to be between 30% and 35% in the weeks of the greatest mobility restriction.
  4. Auto parts: This sector was strongly impacted by the retraction in production and sale of new vehicles that declined from 70% to 75% between January and March 2020. As a result, the retraction in the consumption of lubricants in the auto parts sector is estimated to be 40%-50% in the mobility restriction period.

The sectors least impacted by the C-19 crisis are electricity, food, agriculture, and paper and cellulose, which represent approximately 25% of the consumption of industrial lubricants in Brazil.

  1. Electricity: The consumption of lubricants in the electric power industry is strongly related to process oil used in transformers that are driven by the energy capacity in the transmission and distribution networks instead of the energy consumption that suffers from the crisis. In this sector, the decline in lubricant consumption is estimated to be around 25% in the weeks of social distancing.
  2. Food: This is the least impacted sector since the supply side is being guaranteed, and access to distribution networks is also being provided. In addition, help to the low-income population aims to guarantee conditions to enable and sustain demand. The estimated impact on the consumption of lubricants in the food industry sector is between 10% and 15% in the period of movement restrictions.
  3. Agriculture: This sector has experienced limited impact since the harvest and planted area were defined in the pre-crisis period. However, crops in preparation for the next harvest are expected to have a negative impact on the demand for lubricants in the sector of approximately 20% to 25%.
  4. Paper and cellulose: This industry is strongly correlated to the international market, especially China, which has reacted to the crisis period with the demand for cleaning products such as paper towels, hygienic tissues, and other such products. The estimated decrease in lubricant consumption in this sector during the period of restrictions is around 20%.

Other sectors that represent about 20% to 25% of industrial lubricants consumption in Brazil—steel, metallurgy, chemicals, and capital goods—have an average retraction estimated at around 40% during the weeks of social distancing. Based on this analysis for the industrial lubricants segment, the estimated retraction in consumption ranges from 30% to 35% during the period of social detachment, and the return to normalization should occur at between 85% and 95% of the pre-crisis level due to the reduction in economic activity that is expected to continue impacting industry sectors until at least the end of 2020. As a result, the industrial lubricants segment is expected to suffer a retraction in demand of between 9% and 15% for 2020 in relation to the volume verified in 2019.


The consequences of the COVID-19 crisis are still undetermined, especially in the southern hemisphere, where the virus was detected about three months after its emergence in China, and initial actions on social distancing were adopted at earlier stages of the pandemic in comparison to countries in Europe and the United States. As the country enters the months of colder temperatures, with seasonal incidence of respiratory pathologies already higher than normal, the process of relaxing restrictions on mobility and contacts in the short term may be hindered.

Estimated Brazil Finished Lubricants Demand Growth, 2019 to 2020

impact of Covid 19 on lubricants market in Brazil

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