The Metalworking fluids (MWF) market is evolving. Traditional manufacturing and automotive industries that have relied heavily on metalworking processes, specifically where lubricating and cooling of different applications and practices are involved, are undergoing fundamental changes with challenging repercussions for the metalworking fluids market.
Industries used to working with metals, including production plants and the manufacturing sector where activities such as cutting, machining, stamping, bending, grinding, and heating of metals are essential, are adjusting to new and transformative demands and applications.
In particular, within the transportation sector, where transport equipment manufacturing and automotive production is by far the largest end-use metalworking fluids consuming segment. Here, as the decline of the internal combustion engine (ICE) continues, analogous to the global expansion of the electric vehicle parc, the impact of decarbonization is being keenly felt by the MWF market. So how will this shift impact MWF demand and what is the longer-term outlook as the market responds to these changes?
The rise of electric vehicles (EVs) and shifts to new metalworking fluids demand hubs
The electrification of global transportation is regarded as a key technology to decarbonizing road transport and has posted exponential growth during recent years. A Kline report showed “In 2017 electric vehicles (including battery electric vehicles, but also plug-in and full hybrids) represented less than 2% of the total passenger vehicle parc in 14 selected country markets; in 2022, EVs account for 5%, forecast to reach nearly 25% by 2032.”
With the imminent ban of new car sales based on internal combustion engine (ICE) technologies escalates across Europe in the next decade, automotive manufacturers (OEMs – original equipment manufacturers) have unveiled significant EV spending plans, allocating billions of dollars to scale up their electric vehicle manufacturing capacities, particularly for battery production.
EV manufacturing is different from ICE vehicles manufacturing, and the growth of the former will significantly impact the demand for metalworking fluids (MWFs). EV manufacturing will lead to a reduction in the number of components, and consequently a decline in the demand of MWFs, specifically in processes that involve the manufacturing of power generation and power transmission components.
The impact as manufacturing processes involved in the production of electrical and electronic components, including batteries and electric motors (e-motors) change, will result in decreasing the demand for metalworking fluids.
This transition will impact regional locations differently as significant changes to new market fundamentals and an evolving geopolitical order continues to emerge across the globe, affecting the overall demand for metalworking fluids and generating MWFs demand hubs.
The shift in MWFs demand from West to East, and from North to South
So far, the EV manufacturing installed capacity was predominantly localized in the largest EV sales markets, notably in China, the U.S. and in Western European countries. But the new challenges including high inflation, geopolitical tension, more active governmental intervention, and the return to protectionism will inevitably lead to a realignment of the global supply chain, and consequently a shift in metalworking fluids demand hubs.
- Chinese EV players disembarking in overseas markets – In early stages, the overwhelming expansion of production sites was initially addressed for the domestic market. However, with the saturation of the Chinese EV market, combined with the urban Chinese consumer shifting from car ownership to ride sharing options and resulting rationalization, Chinese EV manufacturers are likely to target overseas markets more aggressively, especially high-value ones like Europe, but also South Asian markets for price-conscious customers. This external consumer demand would drive the construction of new EV projects in China.
- Back to protectionism: The EV market is not only characterized by fierce competition, but the EV market also has a strong geopolitical subtext, with the EU launching an anti-dumping investigation into the Chinese EV industry, following complaints from EU manufacturers that vast subsidies and bank lending from Beijing underpinned the expansion of Chinese manufacturers.
- Amidst the ongoing U.S.-China tensions, and the decline of Chinese exports to the United States, Mexico has been a clear winner. In 2023 Mexico surpassed China as the biggest exporter of goods as per the Bureau of Economic analysis, indicating the beneficial effect of the U.S. IRA (Inflation Reduction Act) on the Mexican industry. Under the IRA initiative, EV manufacturers in the North American Free Trade Agreement are entitled to receive tax breaks offered by that program. Alongside Mexico, countries including India, Indonesia, Vietnam, even Poland, could also benefit by taking advantage of waning US/China trade flows.
- Global Nearshoring and intra-regional Offshoring: The various geopolitical crises currently impacting world trade also reveal sensitive structural vulnerabilities in the automotive global supply chain. As a result, more companies are proactively relocating their manufacturing of essential components back to their home markets from other regions, mainly from In contrast, offshoring of manufacturing activities within the same region has remained unaltered, specially within a common market (European Union), which is evidenced by ongoing investment plans made by German OEMs opening manufacturing to Eastern Europe, namely Poland (4).
As new EV production sites become operational, it is anticipated there will be higher competition in the MWFs market, with a multitude of MWFs providers catering to this increased demand. However, it is expected that this upward pattern in MWFs consumption will have an inflection point, when it will eventually start to decline as the EV transition progresses, along with improvements in housekeeping and maintenance practices. Understanding where the MWFs demand hubs will emerge will be critical as the landscape for this niche sector navigates the decarbonization of global transportation.
Kline’s recently published EV Manufacturing impact on Metalworking Fluids report addresses these and other pressing questions affecting the MWFs market. The report also provides a view on the timeline of the expected MWFs market contraction, and what volume would be potentially lost in the forecast period under various scenarios. The research focuses on markets where growth opportunities in the MWFs market can be expected in terms of countries and applications. Additionally, the study highlights the performance requirements and diversification of products in response to emerging or specialized processes and applications specific to EV manufacturing, particularly BEVs (battery EVs).
