chips shortage

When the (Micro) Chips Are Down, Being Overly Smart Doesn’t Help

If there were an award for strongest trending topics in 2021, semiconductors would be among the top contenders.

Rightly so, considering their use in so many applications, such as automobiles, wireless communications, personal computers, servers, and electromedical and various other digital technologies. As the “smartness” quotient in end-use applications continues to climb, chip demand similarly continues to experience robust growth. The COVID-19 pandemic served to further bolster this momentum, as remote operations of manufacturing and service sectors placed even greater demands on connectivity and digital hardware — to the point where manufacturers began stockpiling chips for the integrated circuits (ICs). In contrast, the just-in-time (JIT) modelled supply chains of the automotive sector froze the procurement of chips during the initial lockdown phases of the pandemic.

As the automotive sector began recovering in the second half of 2020, the industry was forced to compete with other growing end users of semi-conductors, the supplies of which were impacted due to the pandemic-fueled factory shutdowns in countries like Malaysia. Even after chip manufacturing operations resumed in Q4 2020, supplies failed to keep up with the burgeoning demand — despite the maximization of utilization rates of global manufacturing assets. Unfortunately, industry pundits do not expect the situation to be resolved anytime soon.

Automotive Electronification

Over the last two decades, original equipment manufacturers (OEMs) have been working relentlessly toward transforming their automobiles from primarily mechanical machines to electronic devices. Integration of electronics in the vehicle hardware, like the drivetrain, controllers, infotainment, ACES (autonomous, connected, electric, and shared) mobility, and safety systems — for expanding the vehicle functionality and optimizing performance and safety, while complying with emission norms — necessitated the increased use of semiconductor chips. This trend is apparent from the growing content of semiconductor chips in automotive electronics over the last five years.

HISTORICAL GROWTH OF SEMICONDUCTOR CONTENT PER VEHICLE

Total automotive semiconductor market

SOURCE: IC Insights
IC: integrated circuits; OSD: optical, sensors and discrete.

Further, growing penetration of battery electric vehicles (BEVs) and hybrids — which incorporate a greater number of integrated circuits and sensors and, consequently, higher semiconductor content — will further amplify the stress on the chip supply chains.

AVERAGE CAR SEMICONDUCTOR CONTENT BY POWERTRAIN ($)

 

semiconductor by powertrain

SOURCE: Infineon.
Other include semiconductor content in body, chassis, safety and infotainment, opto, small-signal discretes, and memory

Despite the strong recovery in demand, automotive production has been severely impacted by the unavailability of chips, with many global and regional OEMs — like Toyota, Honda, Ford, GM, Tata, and Nio — announcing production cuts or complete shutdowns of select assembly plants. LMC Automotive forecasts a decline of 8% in light vehicle sales in 2021. Further, due to the expected longer recovery path, light vehicle sales for 2022 and 2023 have also been revised downward, by 8% and 3%, respectively. These developments will have a profound impact on the entire automotive value chain. According to AlixPartners, a consulting firm, the semiconductor chip shortage will lead to a loss of USD 210 billion for the global automotive industry in 2021.

FORECAST FOR LIGHT VEHICLE SALES

FORECAST FOR LIGHT VEHICLE SALES

Impact on the Lubricant Industry

Looking forward, the lubricant industry will not be immune to changes in the automotive industry; both automotive and industrial lubricants will be adversely affected. This will have strong implications for the lubricant suppliers, against the backdrop of changes in customer ambitions, preferences, and buying considerations.

On the B2B front, the volumetric impact on factory fill volumes for engine oil, transmission fluids, grease, coolants, and other lubricants will be immediate and certain due to its direct correlation with automobile production. In addition, the demand for factory maintenance fluids and metalworking fluids (MWFs) in assembly plants and auto-component manufacturing facilities will be gradual and uneven — depending on the structure, operations and maintenance, and supply chains of OEMs and auto-component manufacturers.

Typically, the production line is comprised of a complex integration of many rotating pieces of equipment and machines, ranging from CNC machine tools to hydraulic and geared motor systems to compressors to robotics. Based on the operation, manufacturers use a combination of central lubrication reservoirs and isolated sumps for lubricating equipment. Low utilization or partial shutdown of the plant does not directly translate into a clear, measured decline in demand for factory maintenance fluids or MWFs. In the case of the latter, calculations for modelling the impact are more complex due to defined shelf life, which is governed by biological activity and individual company practices/processes for producing machined parts. Among MWFs, the impact on straight oils and premium water-miscible removal and forming fluids will be relatively easily to decipher due to higher application-specific end-use and independent reservoirs. The impact on conventional MWFs might vary depending on the auto-component supply chains and sourcing models of the OEMs. Preventive and treating fluids will be impacted to the extent of their exposure in the metal auto-components industry and mandates issued by automotive OEMs to the component suppliers for fluid use.

Trends in the automotive industry will have a cascading impact on the upstream raw material industries, like metals, rubber, and plastics, where the demand for general industrial oils and process oils will be affected. Further, the slowdown in the processing industries will have a direct impact on the extraction industries, like mining, refining, and petrochemicals, where the lower utilization rates will affect the consumption of the various lubricants used in both stationary and mobile rotating equipment.

On the B2C front, the implications will be broader. The longer wait times, along with rising input costs, including fuel, will have repercussions on the market for new automobiles and the aftermarkets. All these factors will play on the customer’s mind, resulting in contraction of the pool of new buyers, or buyers being forced to compromise on their original purchase aspirations, i.e., selecting either a pre-owned vehicle, or a low-tiered model of the OEM, or choosing a different OEM in the same vehicle category. These changes will all impact the demand for automotive lubricants — volumetrically and qualitatively. Sales of light-viscosity premium engine oils like 0Ws and 5Ws will be impacted as customers opt for heavier and economical grades of engine oils, while maximizing the life of their new vehicles or newly acquired used ones. Similarly, the use of premium greases utilized in fill-for-life components and in transmission fluids will be affected.

Channel volumetric flows will also not be immune to these changes. OEM dealerships will suffer losses in their service business or will experience a dispersion of the in-warranty vehicle footfalls as customers shift their OEM preferences for purchase of new vehicles, depending on the waiting period. The used-car market is also experiencing structural shifts in many regions, with the rapid expansion of the organized business, along with the ratio of new-vehicle sales versus preowned vehicles increasingly skewing toward the latter. The IWS channel will clearly benefit from the growth in average life of the vehicles due to this short-term trend. Further, as the business models of used-vehicle providers mature, they will expand their value-added services, including vehicle maintenance and services to customers, which will emerge as an important channel for lubricant sales.

The table that follows provides a simplified view of the impact the semiconductor shortage will have on lubricant consumption in various end-use sectors, along with the type of lubricants impacted. The scale and length of impact for lubricants will vary depending on the structure and profile of the customers that comprise the end-use sector, the operational and sourcing practices, and, ultimately, the business exposure to the automotive value chain.

RELATIVE IMPACT ON LUBRICANT CONSUMPTION

IMPACT ON LUBRICANT CONSUMPTION

Through ongoing research, Kline’s Energy team continues to expand its understanding of the interplay between various end-use sectors and applications of lubricants for simulating the real-time impact of these industry developments on the lubricants industry and adjacencies in the short, medium, and long terms. We are continuing to track various developments linked to the evolution of the ecosystems, specific customer needs, technology advancements, digitalization, and sustainability for defining the existing and new opportunities, in order to support the growth ambitions of our industry and clients.

About this article:

When the Chips are Down, Being Overly Smart Doesn’t Help features insights from Satyan Gupta, a director in Kline & Company’s Energy sector. Gupta, who is based in the firm’s Delhi office, has more than 13 years of management consulting experience in areas such as new market entry and feasibility, channel and customer acquisition strategy, market-opportunity mapping, and price and sustainability analysis. Prior to joining Kline, Gupta worked in the Natural Gas industry as a technical-commercial consultant.

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synthetic and natural wax

Strengthening Sustainability Efforts Move the Goalposts in The Wax Industry

The economic and health crises of 2020 have caused energy market participants to refocus their attention on protecting the global ecosystem and regeneration — and now, the global wax industry is doing its part to move toward cleaner, sustainable, and circular products.  

As the volume of petroleum wax continues to diminish, crude oil-derived petroleum waxes and non-petroleum synthetic and natural waxes are stepping up to fill supply gaps in the wax industry. But how well will these waxes align with the drive toward global sustainability? Are there more sustainable substitutes? And are consumer preferences changing in favor of end-products with low carbon footprints and recyclable? 

Petroleum wax, which is the workhorse for the wax industry, is produced as a byproduct of Group I base oil production as well as via solvent dewaxing of heavy waxy crude. The supply of Group I base oil-derived wax, which is associated with Group I base oil production, is declining due to declining demand for Group I base oils. The demand for Group I base oils is declining as the automotive and industrial lubricant applications transition toward more efficient lubricants formulated from higher-quality base oils. It is estimated that in the next 10-year period, base oil supply by wax-producing Group I plants will reduce to half of its current volume and, in the long-term — by perhaps 2050 — the supply will further reduce to nearly one-third of the current volume. This will have drastic implications on the supply of petroleum waxes, leaving the world short of nearly 1.5-2.0 million tonnes of gross Group I base oil-associated slack wax production. 

Wax and Group I Base Oil Supply Trend

Crude oil-derived petroleum waxes, produced by massive petrochemical refineries in Northeast China, have historically helped in softening the blow of Group I base oil-derived petroleum waxes capacity closures. These refineries will continue to supply petroleum waxes in the mid- to long-term future to partially fill the gap created by the loss of base oil-derived waxes. 

But which waxes are most sustainable? According to Kline's research, those produced via synthetic and natural processes may have an edge in the long-term future. Synthetic waxes that are derived from natural gas, such as those produced via Fischer-Tropsch (FT) process and polymerization of ethylene, have relatively lower carbon footprints compared to crude oil or coal-derived waxes.  These waxes are also free from toxic impurities such as polycyclic aromatic hydrocarbons, sulfur, and heavy metals, which may be found in petroleum waxes.  

Polyethylene (PE) waxes currently upstage other synthetic waxes when it comes to offering innovative sustainable products. Byproduct PE waxes that are produced via thermal cracking of waste plastics replace the “end-of-life” concept with “regeneration” in the plastics industry — one of the most vexed industries for waste generation. Although thermal cracking of waste plastics into oils and waxes has existed for years, the technology is regaining focus as a viable solution for tackling global waste plastics issues. New players are entering this market, with GreenMantra and Clariter being the most recently established.  

waste plastics into oils and waxes

The wax market is also currently seeing the introduction of revolutionary bio-based PE waxes. This type of wax, produced from plant-sourced ethanol, a 100% renewable source, can assist end users in reduce their carbon footprints when used in applications such as adhesives, cosmetics, coatings, and PCV compounding. In June 2021, Braskem, a Brazilian petrochemical company, introduced a sugarcane ethanol-based bio-PE wax product to its I'm green™ branded product portfolio. Demand for such products in the future will be driven by PVC manufacturers who are introducing bio-based PVC products to their portfolios and are looking for bio-based solutions for PVC lubrication. Bio-based PVC technology has recently surfaced, with eminent PVC manufacturer INEOS’ INOVYN business at the forefront with its BIOVYN branded bio-PVC products. 

Natural waxes that are produced from renewable plant-based sources and carry a green label on them, such as palm and soy, are doing exceptionally well in candle applications. These waxes are also gaining steam in cosmetics, food-based packaging, and coatings applications, driven by their suitability for food contact. Natural waxes have historically advanced only in application areas that consume softer waxes due to their lower melting points. However, the growing desire of wax consumers to use sustainable ingredients in other applications that have been traditionally served by harder, high melt-point waxes will drive their demand in the long term. Clariant’s Licocare rice bran wax, which is targeted at high-melt applications such as engineering thermoplastics and masterbatches, is an example of this trend. 

How will the wax industry acclimate to the new sustainable and circular environment? What roadblocks could slow down the adoption of waxes with low-carbon footprints?

The wax market has historically exhibited versatility and adeptness in absorbing non-petroleum waxes in the absence of a sufficient supply of petroleum wax. In the future, it is estimated that wax customers in traditional candles or board sizing applications — who are sensitive to changes in supply or price of wax — will experience a more significant impact. These applications will find it tougher to transition toward more expensive alternatives to petroleum wax, such as FT waxes. These applications are driven by end-consumer preference, have low barriers to entry, and are vulnerable to substitution in the long run. In contrast, rheological and surface applications such as PVC, hot-melt adhesives, masterbatches, inks, paints, and coating are higher-value applications that offer higher barriers to entry. Rheological and surface applications also have the ability to pay higher prices for waxes. In the long run, these applications will exhibit higher flexibility to absorb cleaner or sustainable products, such as synthetic waxes or even chemically modified plant-sourced waxes, which are typically more expensive. 

Another foreseeable challenge in transitioning toward clean and sustainable waxes could arise due to the raw material limitations for these waxes. Both synthetic and plant-sourced natural waxes could see supply limitations in the long-term future for several reasons. For one, in FT waxes, nearly half of the global supply is met by Chinese coal-to-liquids (CTL) plants, which convert coal to syn gas for producing waxes and other products. These plants are not likely to see any capacity additions beyond 2030 as China tightens its carbon emission limits to meet its carbon neutrality targets by 2060. Other synthetic wax suppliers, such as thermal degradation PE producers, may see lower volumetric growth due to raw material issues. The raw materials (plastic waste) that these plants consume are non-uniform in nature, resulting in lower quality of finished products. While these waxes may be able to meet the circular economy objective, they may not achieve the required quality standards for several applications. 

Vegetable oil-derived waxes may seem to be checking all the boxes, as they are plant-sourced. However, they will also have their own limitations in the future. Growth in palm plantations, from which palm wax is derived, has been termed as “the other oil spill,” as it has resulted in large-scale deforestation of tropical forest land in Asia. Negative consumer sentiments associated with palm plantations are likely to hamper the growth in palm waxes in the future. Meanwhile, soy waxes —produced from soy oil — are seeing growing demand from other competing markets such as fuels and food, and this could restrict the availability of soy oil for producing wax. 

wax industry acclimate to the new sustainable and circular environment

Sustainability trends will provide a new spin to the wax market 

The ever-complex wax market will face new challenges as consumers increasingly demand materials produced from greener sources. As a result of such demand, suppliers will strive to exhibit their commitment to protecting the global ecosystem by including new, innovative products based on renewable and recycled sources. With a reinforced global wave toward sustainability and a circular economy in 2020 and 2021, the wax industry is at the cusp of a new — and sustainable — normal.  

Kline & Company, an industry leader in providing market research reports and expertise on the wax industry, will soon be publishing a detailed report titled, Global Wax Industry: Market Analysis and Opportunities. 

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Global White Oils: Market Analysis and Opportunities

The global demand for white oils has been increasing slowly over the past few years. Despite the slow growth, the market remains dynamic due to the increasing use of Group II baseoils, intensifying competition from small suppliers, substitution by other products, and increasing regulatory control.

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Global Lubricants: Market Analysis and Assessment

This continuous publication since 2003, provides a comprehensive, in-depth analysis of automotive and industrial finished lubricant products, end-use industries, trade classes, major suppliers, and market trends in leading country markets and regions.

The customized report covers your choice of 10 country market and/or supplier profiles and offers a comprehensive Year in Review summarizing the overall global lubricants industry.

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How Will the White Oils Market Evolve in the Post-COVID-19 World

How Will the White Oils Market Evolve in the Post-COVID-19 World

Global white oils demand is expected to grow at a CAGR of 3.1% to reach almost 2.0 million tonnes by 2025, mainly due to the global economy recovering from the impact of COVID-19.

White oils ― comprised of highly refined paraffinic or naphthenic baseoils with extremely low aromatic content ― are colorless, tasteless, odorless, and hydrophobic and do not change color over time. They’re also known as light mineral oils, light liquid paraffin, and light paraffin oils in different parts of the world.

White oils are used in various industries and their functionality varies from one industry to another. Key white oil applications are described in the table below:

white oils market in different applications

The Changes in White Oils Grades Uses

White oils are produced in two quality grades: pharmaceutical and technical (or industrial) grade. Pharmaceutical grade is the most refined white oil, consisting of only branched alkanes and cycloalkanes and free from aromatic or unsaturated compounds. Quality standards for pharmaceutical-grade white oils in a country are usually set by the national pharmacopeia. However, standards set by the United States Pharmacopeia and the U.S. FDA for use in the food, pharmaceuticals, and personal care industries are followed globally. 

Pharmaceutical-grade white oils are mainly used in industries such as personal care, pharmaceuticals, and food, as the end products of these industries are either ingested or come in contact with human skin. Earlier, pharmaceutical-grade white oils were used in equipment, where incidental contact with food, medicines, or personal care products was possible. For all other equipment, technical-grade white oils were used. However, lately, for all equipment, only pharmaceutical-grade white oils is used irrespective of whether the lubricant can come in contact with end products or not. This approach is followed in most markets.  Pharmaceutical-grade white oils are also used in industrial applications such as adhesives and sealants, and plastics, as they are used in packaging food, medicines, and personal care products. 

Technical-grade white oils are mainly used in non-food-contact industrial applications such as textile, plastics, and adhesives and sealants, paper, and agriculture. However, technical-grade white oils can be used in food, pharmaceutical, and personal care industries, where white oils do not come in contact with end products in some markets, such as China. 

Why Pharmaceutical Grades Dominate

Pharmaceutical-grade white oils lead demand with more than 50% share due to a preference for pharmaceutical-grade white oils in the food, pharmaceuticals, and personal care industries. They also have significant usage in the plastics and adhesives and sealants industries used for food, medicine, and personal care products packaging, as previously noted.

However, there are regional variations. For example, in Europe and North America, pharmaceutical-grade white oil dominates the market, with more than three-fourths of market share. As a result, in these regions, end users in industrial applications such as adhesives and sealants or plastics (not meant for food packaging) also use pharmaceutical-grade white oils.  The end users were already using pharmaceutical-grade white oils and have shifted to only using pharmaceutical-grade white oils. It also helps end users project an image of being more health- and safety-conscious. And while pharmaceutical-grade white oils are more expensive than technical-grade of white oils, the price difference is within the 5% to 10% range, which is not cost-prohibitive.

Global White Oil Demand

Global white oil demand was estimated at 1.7 million tonnes in 2020. Asia leads consumption, as it is the leading producer of plastics, textiles, pharmaceuticals, and adhesives and sealants (the industries that are the largest consumers of white oils). Asia is also one of the biggest producers of personal care products globally. China and India are the two biggest markets for white oils in Asia. Asia is followed by North America and Europe, with plastics and personal care being two leading consumers of white oils in both regions. The United States is the largest market in North America, accounting for almost 95% of white oils demand in the region. In Europe, Germany is the leading consumer of white oils.

 GLOBAL DEMAND OF WHITE OILS BY REGION, 2020

white oils demand by region

Impact of COVID-19

The COVID-19 pandemic had an adverse impact on global white oils demand, causing an estimated 5% drop in 2020. The scale of decline varied from one country to another. The decreases, between 5% and 10%, were higher in developed markets such as Germany, the United States, France, and the United Kingdom because these countries were among the most impacted during the first wave of COVID-19, experiencing temporary closures or reduction in production activities in various factories.

China and India also witnessed lessened demand of around 3% in 2020. However, in other Asian countries, such as South Korea, Japan, and Indonesia, drops in demand were not significant for several reasons. For one, decreased demand in industries such as agriculture, textile, and personal care in South Korea and Japan in 2020 was offset by increased demand in the food, pharmaceuticals, and plastics industries. As a result, the decline in demand was less than 1% in both South Korea and Japan. Other countries, such as Brazil and South Africa, also witnessed minor decline in white oils demand in 2020.

The impact of COVID-19 on various industries differed. As consumers observed quarantine orders and purchased less makeup and clothes, demand for white oils decreased in the personal care and textile industries. Meanwhile, the closure of restaurants and bars led to a decline in white oils demand in the food industry, and the temporary closure of plastics and adhesives and sealants production facilities also led to declines. But the pharmaceuticals industry saw an increase in white oils demand. The reason: Pharmaceuticals production rose, with consumers purchasing more than their average number of medications during the pandemic.

Base Oils

White oils are among the purest lubricants. Group I base oils need to undergo an extensive purification process before they can be used to produce white oils. This increases the cost of producing white oils from Group I base oils. Further, the supply of Group II base oils has increased while the supply of Group I base oils has decreased. As a result, white oil suppliers prefer Group II base oils over Group I due to the higher processing cost associated with the latter. Group II base oils are also preferred over Group III base oils, as the latter are more expensive than the former.

The choice of base oils to produce white oils also depends upon the availability. For example, the United States is the biggest producer of naphthenic base oils. Therefore, the usage of naphthenic base oils to produce white oils is higher than Group I and III base oils in the country. The demand for white oils in Indonesia and South Africa is met through imports; the base oils used to produce them depend upon their availability in countries such as India and South Korea, from where white oils are imported.

White Oil Suppliers

China, the United States, and India, together, accounted for around two-thirds of global white oils demand in 2020. Consequently, the leading white oils suppliers in these countries also lead the global market. For example, Sinopec leads the market in China and is the leading supplier globally. Similarly, HollyFrontier and Calumet, together, account for 90% of sales in the United States. Savita Oil, Gandhar Oil, Raj Petro, and Apar are top leading suppliers on India’s white oils market.

Apart from Indian white oil suppliers, most other white oil suppliers are focusing on their domestic markets. For example, Sinopec is the biggest white oil supplier, but all its white oil sales are in China; Indian suppliers such as Gandhar Oil and Savita Oil, export white oils to such countries as Brazil, Indonesia, and South Africa. Panama Petrochem, an Indian supplier, is mainly focusing on the exports market for white oils.

Where Will White Oils Grow the Most?

Lithium-ion battery separators is expected to be the fastest-growing application for white oils from 2020 to 2025, driven by increased interest in electric vehicles. The pharmaceuticals industry is expected to be the second fastest-growing application for white oils, driven by an aging population in Europe and countries such as Japan, as well as increasing healthcare coverage in countries such as India and South Africa.

Africa and the Middle East, and Europe are expected to be the fastest-growing regions for white oils demand globally. Europe was the region most affected by COVID-19 and is thus expected to have faster growth rates as its economy recovers. Growth in Africa is expected to be faster due to income growth, leading to quicker growth in packaged food items and pharmaceuticals. This, in turn, will lead to higher growth in white oils demand. Asia will remain the biggest white oils-consuming region due to economic growth and the continued shift of the industrial production of plastics, paper, and more to Asia.

In terms of grades, demand for pharmaceutical-grade white oils is expected to grow faster than technical-grade white oils. This will occur as white oils demand in the pharmaceuticals, food, and personal care industries — which mainly use pharmaceutical-grade white oils — grows faster than white oils demand in industries such as adhesives and sealants, along with plastics, which uses technical-grade white oils in large quantities.

In terms of base oils, demand for Group III and II base oils for manufacturing white oils is expected to grow faster than demand for Group I and naphthenic base oils. This is mainly due to purity requirements and growth in the supply of Group II and III base oils.

About the study:

Global White Oils: Market Analysis and Opportunities assists white oil marketers in identifying opportunities within the global white oil industry. It also serves as an invaluable tool in the strategic planning process. To learn more about the study REQUEST more information.

 

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Global White Oils: Market Analysis and Opportunities

The global demand for white oils has been increasing slowly over the past few years. Despite the slow growth, the market remains dynamic due to the increasing use of Group II baseoils, intensifying competition from small suppliers, substitution by other products, and increasing regulatory control.

Learn more >>

Global Lubricants: Market Analysis and Assessment

This continuous publication since 2003, provides a comprehensive, in-depth analysis of automotive and industrial finished lubricant products, end-use industries, trade classes, major suppliers, and market trends in leading country markets and regions.

The customized report covers your choice of 10 country market and/or supplier profiles and offers a comprehensive Year in Review summarizing the overall global lubricants industry.

Learn More >>

 

 

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Five Reasons to be a Part of Argentina’s Lubricants Market

Five Reasons to be a Part of Argentina’s Lubricants Market

Argentina lubricant demand growth

The finished lubricants market in Argentina is estimated to increase at a compound annual growth rate (CAGR) of 2.9% between 2020 and 2025 to reach 209.4 kilotonnes, according to Kline’s just-published analysis. What are the five key drivers of this impressive outlook? Where do the opportunities lie? Read on:  

 1. Growth of demand for finished lubricants in Argentina due to growth of e-commerce and delivery apps

Despite the pandemic, the motorcycle parc in Argentina grew by 3% in 2020. The growth in sales stems from the increased demand from e-commerce, delivery apps, and individual transportation. During the same year, 1.3 million new consumers in the country shopped via e-commerce, taking the overall user base to 20 million online shoppers. This generated delivery demand in Argentina for 164 million purchase orders for goods, an increase of 84% over 2019. According to the Global Ecommerce Update 2021, Argentina was the country where e-commerce grew the most in 2020. [1] In addition, according to consultant Focus Marketing, the use of delivery apps in the country grew by 400% from March to May 2020 due to isolation measures [2]. Finally, motorcycles were adopted by Argentines as an economic means of transportation during the pandemic. Without access to public transportation, the alternative of using a personal vehicle for a large part of the population was too expensive, as fuel prices increased 19% in the second half of the year, in addition to inflation of 36% in all other vehicle-associated expenses. 

Why is this an opportunity? Prior to the 2020 pandemic, e-commerce was used by less than 30% of the population in Argentina, and delivery apps were in their infancy. The lockdown drove the need for consumers to make purchases via e-commerce to obtain essential provisions. The adoption of e-commerce and delivery apps by consumers has consolidated even after the lifting of restrictions. Between 2021 and 2025, continued inflation and lack of access to public transportation will push more consumers in the country to purchase motorcycles and scooters as a low-cost solution for delivering e-commerce orders (as part of their jobs) or to move around the cities. These factors will drive demand for MCO in Argentina at a CAGR of 4.0% through 2025, by when re-pandemic activity will return due to extensive levels of vaccination. 

ESTIMATED DEMAND FOR AUTOMOTIVE ENGINE OIL IN ARGENTINA, 2020 -2025

Argentina Lubricant demand growth

2. Argentina’s lithium deposits

As the world turns to hybrid electric vehicles (HEV) and battery electric vehicles (BEV) to reduce CO2 emissions, Argentina has taken steps to profit from its rich lithium deposits. In August 2020, the Sustainable Mobility Law (MS) was introduced; it will facilitate an investment of USD 5 billion in the country for national production (offering tax incentives and accelerated amortization, among others, to manufacturers) to be scaled over the next 20 years. Numerous other themes are also included in the law, such as the Mobility Institute for motivating technological innovation in the vehicle industry, electro-chemical R&D (lithium), mobility R&D, and technology R&D (combustion cells, driverless vehicles, artificial intelligence, and 5G super connectivity). The law covers passenger vehicles, public transportation, and commercial vehicles. Over the next five years, the project plans to attract USD 300 million in investment, generate more than 2,000 jobs, and lead to local and international sales of USD 570 million annually.

While most lithium extraction projects in the country are in their initial phase, the Argentinian government is betting on this sector as a significant source of revenue in the coming years. President Alberto Fernández’s administration hopes to boost annual lithium carbonate production in Argentina to more than 230,000 tons by the end of 2022, a sharp rise from the current level of 40,000 tons. One of the incentives being analyzed to lure miners includes investment incentives for lithium mining, which may include a possible exemption for profit repatriation.

Why is this an opportunity? Argentina is a major source of lithium, the key component in EV batteries. According to the United States Geological Service (USGS) [3], the country has 19.3 million tons of lithium reserves. It has two projects (one on standby) that could generate 38,000 tons of lithium carbonate equivalent (LCE) intended for export. The Argentine Association of Mining Companies (CAEM) [4] expects lithium production in the country to double by 2022. As each of these projects comes to fruition, they will demand a variety of automotive and industrial lubricants for their operation.

3. High commodity prices benefitting sales of agricultural equipment in Argentina

The off-highway finished lubricants segment in Argentina includes vehicles and mobile equipment used in the agriculture, oil and gas, mining, and construction industries. The agricultural and manufacturing industries (mainly associated with food processing) were the largest consumers of industrial lubricants in the country in 2020, accounting for 18% and 17% of demand, respectively.

INDEC (Argentine Institute of Data and Census) reports that in 2020, sales of agriculture equipment units exceeded 2019 levels by 31.2%. Sales of sowing machines grew by 24.9%; tractor sales increased by 4.3%, while only harvesters suffered a minor decline of 2.1%. In 2020, the national production of tractors in Argentina posted growth of 82%. This equipment category is registering impressive growth after two prior years of recession and inflation. Many agricultural companies trade their grains with manufacturers to upgrade their equipment. It is also a way to protect their crops, which lose quality if stored too long in silo bags.

AW68 is the leading hydraulic fluid grade used specifically for its large load-carrying ability, reflecting the demand associated with heavy-duty equipment, including excavators, forklifts, cranes, combines, balers, and harvesters, as well as natural gas and air compressors.

Why is this an opportunity? In the off-highway segment, Argentina’s agriculture industry is implementing high-technology engines, especially in tractors and harvesters. These diesel engines require high-quality HDMO meeting the API CJ-4 and CK-4 service categories, both of which are compatible with Euro V standards. Owners and operators of new equipment typically follow OEM recommendations, which will drive demand for commercial automotive lubricants.

4. Chinese investment in Argentine infrastructure

China is expected to play a key role in the economic recovery of Argentina between 2020 and 2025 as President Fernández gravitates toward the Asian giant to negotiate the entry of the country in the belt and road initiative. Fernández proposed investment projects valued at over USD 30 billion in a May 5, 2021 visit to Beijing, covering sectors ranging from mining and energy to construction and agriculture.

The plan considers more than 20 projects related to energy and infrastructure which include renovation of the infrastructure of the four train lines (one specifically to transport soy from the interior to the port of Buenos Aires), the installation of intelligent pig farms, and the construction of the Nuclear IV power plant. Finally, China will invest in the mining of copper and lithium. [5]

Why is this an opportunity? Proposed Chinese investment in Argentina from 2020 to 2025 will generate more than 20,000 new jobs and require the purchase or importation of equipment specific to each industry, driving demand for automotive and industrial finished lubricants across many industry sectors.

5. Private-sector construction on the rise in Argentina

In 2020, construction represented 5% of off-road lubrication use in an industry that collapsed by 22.8% due to pandemic-related shutdowns.
Manpower Group Argentina conducted its Employment Expectation Survey (ENE) in December 2020 to gauge the outlook in Argentina for 2021. It projects the biggest growth for Argentina’s construction industry, which is expected to expand by over 10%. The 2021 rebound in the Argentine construction sector is driven by factors such as investments in public works by the government, along with tax benefits implemented to push housing construction and pandemic-related lifestyle changes that have forced people to stay at home longer and invest in works and improvements. By April 2021, Argentina’s construction industry had grown by 71% compared to 2019, with most contracted works carrying out operations as “business as usual,” with only 9% of firms still unable to perform due to COVID-19 restrictions. [6]

Why is this an opportunity? Private construction projects in residential units and logistics parks — including demand for warehousing locations to accommodate the growth of e-commerce — will sharply drive demand for commercial automotive lubricants in Argentina during the second half of 2021.

LATAM Finished Lubricants Market Overview

Beyond Argentina’s lubricants demand growth, Latin America’s finished lubricants market also offers opportunities for global and local companies looking to adjust strategic plans for the region. LATAM’s lubricants demand is rebounding, despite COVID-19 continuing to plague the region, as governments ease restrictions to recover economic activity. For example, better-than-expected passenger vehicle sales in key markets such as Mexico, Brazil, and Colombia offer a glimpse of hope. New passenger vehicle sales in Mexico recorded a first-quarter net growth of 3.3% in 2021. [7] In Brazil, accumulated sales of new passenger vehicles are up 32% compared to the prior year, [8] with sales of BEVs/HEVs//PHEVs registering the strongest quarter in history, up 29.4% in contrast to the same period in 2020. [9] Colombia also witnessed extraordinary new passenger vehicle sales, up 86.6% versus March 2020, while year-to-date sales of BEVs/HEVs/PHEVs increased 248.7% for a total of 3,651 units [10].

The mining sector in Latin America also brings good news to lubricants suppliers, as operations fire on all cylinders with silver, gold, copper and even zinc at high values. These metals represent Mexico’s, Chile’s, and Peru’s leading mining operations, and the jump in values supports Kline’s view of a projected 35% growth in Latin American mining in 2021. However, this trend may put the industry on the governments’ radar for increased taxation.

Why is this important? Heavy visgrades (25Ws, 20Ws, and 15Ws) account for 63% of PCMO in LATAM due to the average age of the vehicle parc. However, with the influx of newer vehicles, the trend will continue to move to lower viscosities (5Ws and 0Ws) fueled by the modernization of the parc, the growth of EVs, and OEM recommendations.

Although new tax impositions are more difficult to execute since most agreements between mining companies and governments are protected by international arbitration, elections in Chile, Colombia, and even Ecuador may put the mining industry under tax pressure, depending on their outcome. [11]

Click here to find out more about our upcoming report on Latin America’s Finished Lubricant Market Overview, which offers detailed data on the potential opportunities in sectors in a wide range of countries.
If you are interested in gaining knowledge of Argentina’s lubricants market beyond the five opportunities outlined in this post, CLICK HERE.

Argentina is also a part of Kline’s Global Lubricants Market Study, where its market can be included in the customized report which covers your choice of 10 country markets and/or supplier profiles and offers a comprehensive Year in Review summarizing the overall global lubricants industry. MAKE SELECTION NOW.

Footnotes:

  1. Argentine Chamber of E-commerce (CACE), https://www.cace.org.ar/
  2. Focus Marketing
  3. https://www.jornada.com.mx/notas/2021/06/07/economia/mexico-noveno-pais-en-reservas-de-litio-asegura-informe-en-eu/
  4. https://www.caem.com.ar/
  5. Telam https://www.telam.com.ar/notas/202009/510456-china-argentina-relaciones-bilaterales.html
  6. https://www.forbesargentina.com/today/cuales-son-expectativas-construccion-2021-n5062
  7. https://soloautos.mx/noticias/detalle/ventas-autos-mexico-abril-2021/ED-LATAM-23718/
  8. https://g1.globo.com/economia/noticia/2021/06/02/venda-de-veiculos-novos-no-brasil-cresce-em-maio-estoque-segue-baixo-diz-fenabrave.ghtml
  9. https://insideevs.uol.com.br/news/507129/carros-eletricos-vendas-brasil/ 
  10. https://autosdeprimera.com/noticias/noticias-nacionales/ventas-autos-nuevos-colombia-marzo-2021/
  11. AMI https://www.youtube.com/watch?v=zFf6k6bpXe4

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Passenger Cars and Passenger Car Motor Oils in the Post-COVID-19 World

Passenger Cars and Passenger Car Motor Oils in the Post-COVID-19 World

Passenger Car Motor Oils in the Post-COVID-19 World

How the COVID-19 pandemic has changed us! We do not go out as much, (mostly) work from home, live off food deliveries, and have a slightly better appreciation of Mother Nature. Personal mobility in 2021 and beyond will be very different. In this article, we take a brief look at how COVID-19 has impacted electric vehicles, ridesharing, and autonomous vehicles, and what it means for the passenger car motor oils (PCMO) market.  

Electric vehicles have proven to be immune to COVID-19

The global electric vehicles (EV) market is getting closer to the highly anticipated tipping point when EV sales exceed ICE sales. This is expected to happen despite the unprecedented market contraction caused by the outbreak of the global COVID-19 pandemic. Sales of EVs topped approximately three million units, which represents a growth of 40% as compared to 2019, in contrast to a 15% decline in global sales in the internal combustion engine (ICE) vehicle segment. EV sales growth is high, partly because growth is on a small-scale basis but the divergent path for EV and ICE sales is telling.

The unexpectedly high resilience of EVs may be attributed to existing and new government stimulus, greater consumer focus on sustainability, and accelerated technological advancements, particularly in the field of battery technology. The last factor is a Gordian knot for the EV industry, a key element in determining the pace in the transition to electric mobility.

The road ahead

According to Kline’s analysis, the population of EVs including battery electric vehicles (BEV), plug-in hybrid vehicles (PHEV), and hybrid electric vehicles (HEV) is expected to post double-digit growth over the next 20 years, accounting for 35% of the total passenger vehicle population in select countries (see figure below) in 2040, from under 3% in 2020. The speed of transition is varied within the regions under consideration, with Europe and China exhibiting the fastest adoption of EVs. Moreover, sustainability has become the cornerstone of future technological and economic development in Europe. In the aftermath of the first wave of the COVID-19 pandemic in the first half of 2020, several European countries including Germany, France, and the United Kingdom, reinforced their determination to move toward a carbon-neutral future by offering purchase incentives targeting electric vehicles. Similarly, governmental support has been crucial in the development of China’s New Energy Vehicle industry. All in all, the motivation to adopt EVs and the pace of diffusion will be based on a mix of considerations, each with a different weight for individual countries. These considerations include a focus on sustainability and policy support, securing the competitiveness of national automotive sectors, and availability of energy resources.

EV POPULATION IN SELECT COUNTRIES BY EV TYPE

Source: Kline’s PCMO 2040 report

Ridesharing was hit hard because we were homebound, but food deliveries prospered as we were ordering food online

Although the popularity of ridesharing, ride-hailing, and pooling services witnessed rapid growth in the past, their popularity has been severely dampened by the pandemic. Due to COVID-19, ride-hailing and ridesharing services were hit hard in 2020. In general, the COVID-19 pandemic has damaged revenues of ridesharing providers in 2020 due to an aggressive lockdown imposed by governments around the world. In some countries like India, shared mobility services were banned by the government with an exception for emergency services. In other countries, consumers were afraid of using these services due to concerns of contagion even when mobility restrictions were lifted. In the short to medium term, a negative impact of COVID-19 is likely for the ridesharing industry. But it is not all bad news for this industry. With most consumers being stuck at home, ordering food online has seen robust growth. Food delivery has partially compensated for the decline in passenger vehicles. So much so that some companies have set up “ghost restaurants” to promote food delivery. If the pandemic and its attendant restrictions last longer, there may be a permanent shift in consumer behavior.

Autonomous vehicles are a dream for a later day

At the current state of development, it is difficult to quantify the impact of autonomous vehicles (AVs) on personal mobility and their synergetic effect with the deployment of electric vehicles, and more importantly, the impact of the pandemic on AVs. While the pandemic could have resulted in further momentum for driverless rides due to social distancing guidelines and mobility restrictions, the industry has also observed reduced willingness to invest in AV technologies. Investors are shifting their focus to other opportunities that may pay off in the short term. With the looming employment crisis, will the government support this technology? Will the emergence of driverless cars always be five years into the future? Only time will tell.

Electric mobility is reviving technological innovation and the need for differentiation

Inevitably, the growth in EVs has the potential to greatly reduce PCMO consumption, especially for engineless BEVs as they do not need engine oil at all. Kline estimates that a decline of PCMO demand at a CAGR of 1.0% is purely due to the reduction in the effect of EV penetration in the passenger vehicle population in the select countries covered in the study. Conversely, EV growth will create a new market for EV fluids. This new generation of fluids will address key challenges presented by new electric powertrain, which are sustainability (carbon footprint reduction), tribological, and thermal features. Electric powertrains will require the development of new fluids for thermal management. Some lubricants products such as transmission fluids and greases will continue to be used but will have to be reformulated to meet new performance requirements such as thermal conductivity, electrical resistance, material compatibility, and enhanced wear protection.

PCMO DEMAND GROWTH TREND IN SELECT COUNTRIES

Passenger car motor oils are becoming a key component of an emerging mobility solutions toolbox

Irrespective of the negative implications for the volumetric lubricant demand, the penetration of EVs has a vast potential to redefine the finished lubricants market.

From a regional perspective, it is expected that the increase of EVs will exacerbate the stagnant PCMO demand in mature markets, notably in Europe and North America. Conversely, emerging economies in Asia-Pacific and Latin America will most likely continue to grow even at projected high EV penetration levels, primarily fuelled by robust new vehicle sales and strong economic performance in the case of the former, and due to projected low EV penetration in the case of the latter.

The automotive aftermarket business is also embracing a new era of electric and shared mobility. OEM-franchised workshops are the biggest beneficiary of increasing EV penetration. EV servicing will be a purely do-it-for-me (DIFM) market. Most likely, customers are not going to change EV fluids on their own but will seek these services at OEM-authorized workshops.

Digital technology has also been boosted by the pandemic. The adoption of digital car dealerships gained significant traction during the pandemic. Predictive, smart, and connected maintenance services offered with EVs provided with onboard diagnostic sensors and algorithms to alert the car owner on when to change the PCMO is becoming the standard.

Given the inherent uncertainty of the longer-term outlook, it is important to look beyond the pure market numbers, and pay attention to broader shifts in the marketplace and understand the implications for the value chain under different scenarios. Agile players, operating under a balanced set of product differentiation strategies articulated for the growing need for a greener, smarter, connected future, will gain an unbeatable competitive edge.

The PCMO Market in 2040: A Long-term Outlook assists lubricant marketers in identifying opportunities and challenges within the PCMO industry.

Kline's Electric Vehicles Fluids: Market Analysis and Opportunities helps to understand the evolving EV fluids market in the context of emerging EV technologies, their penetration in the overall market, and their fluid requirements.

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In this webinar, Sharbel Luzuriaga introduces the implications of penetration of electric vehicles and other forces for PCMO industry participants.

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☞ How the electric vehicle market has thrived during the COVID-19 pandemic
☞ The implications of a faster transition to electric mobility on the PCMO market
☞ The synergetic impact of other disrupting forces such as ride-sharing and autonomous vehicles

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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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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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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 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.

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

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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