By Vicky Villena-Denton and Aaron Stone
It seems the lubricant business is becoming an increasingly attractive proposition. Several companies have entered or expanded within the lubes industry in recent times. In some markets, such as the United States, declines in lubricant distributor numbers merely reflect consolidation and rationalization by major oil companies as businesses recognize the importance of scale. These changes are creating a market ever more competitive and in many cases is producing formidable industry players.
Somewhat ironically, lubricants are progressively more desirable at a time when demand (on a volume basis) is being eroded by technological advancements, government legislations and a leap in lubricant quality. Not to mention the looming invasion of alternative energy vehicles with negligible lubricant requirements.
Nevertheless, margins for lubricants remain comparatively favourable to other refined petroleum products, with the added incentive of relative stability in volatile commodity environments. The low-cost input of lubricants compared to the potentially catastrophic cost of equipment failure also delivers beneficial price inelasticity. While admittedly, slowing or a reversal in volume is evident in mature markets, much of this is offset by a shift to premium quality, higher margin products.
Puma Energy today is one of the world’s largest independent midstream and downstream oil companies. Argentinian based oil company Compañía General de Combustibles created the Puma Brand in 1929, though it was only when the brand rights transferred to Trafigura in 1997 that Puma began its evolution into an intimidating industry competitor.
Since 1997 the company has expanded to 48 countries on five continents and now boasts an eye-watering 8,300 employees. Recent acquisitions by Puma Energy include an agreement with the Chishti Group to attain a 51% interest in Admore Gas Pvt. Ltd, one of the leading independent oil marketing companies in Pakistan, concluded on 1 November 2017; A USD 92 million investment in a petroleum products terminal at Thilawa port in Myanmar — part of a joint venture between Puma Energy and local company Asia Sun Energy; and the 2017 purchase of Tropifuels, S.A., expanding to 70 Puma’s service station network in Panama and strengthening the company’s commitment of supply of fuels and lubricants to more than 70 industrial clients. Puma Energy’s impressive rate of expansion over the past few years even led to speculation of an imminent public listing in 2016.
Puma Energy had planned an entry into the Australian market for several years, however, the establishment of the Singapore head office in 2012 surely provided the impetus for growth in the Asia-Pacific region. The independent oil company entered the Australian market in January 2013 after acquiring Neumann Petroleum, Ausfuel (the owner of Gull, Choice and Peak service stations) and Central Combined Group — adding 270 service stations to their portfolio alongside a variety of other strategically located fuel assets. This, and the subsequent acquisition of Malpass Enterprises (EziFuel) has firmly positioned Puma Energy as Australia’s largest independent fuel retailer and, according to the company, delivered a much-needed boost to competition in the local market.
Puma Energy has experienced rapid expansion in recent years, with 20 depots and three bulk seaboard terminals in Australia, in addition to the 270+ retail sites.
Headquartered in Brisbane, Puma Energy Australia employs more than 600 people in Australia, supplying approximately 2.2 billion liters of vehicle and aviation fuels into the Australian marketplace per annum. It has its own haulage fleet, Directhaul, which delivers 1.6+ billion liters of fuel every year to more than 4,000 commercial customers.
The passage to selling lubricants in Australia was a natural progression after completing the aforementioned acquisitions, so it was no surprise when Puma Energy Australia announced the launch of Puma Lubricants in September last year.
Puma Energy Australia tapped lubricant industry veteran Peter Swinburn to head Puma Lubricants Australia. Swinburn worked in the Asia-Pacific region for more than a decade with Chevron Lubricants during which time he helped Caltex enter Indonesia when the market was liberalized. He was also marketing lead for commercial and industrial lubricants for Chevron Asia Pacific based in Singapore.
“A number of years ago, Puma Energy, which is a commodity trader, started moving midstream and downstream. They identified Australia as an opportunity for them to operate. The focus was on the fuels side. From there, Puma started gaining customer base. One of the keys to success is to offer a single source to our commercial client base. Frequently, lubricant is part of the tender requirement. It is a natural extension of an income stream,” says Swinburn.
“I think there has been a strong interest in the Puma brand of lubricants,” Swinburn adds.
Before entering the lubricants market, Swinburn says, “We made sure we have the supply chain. We made sure we knew what the market required. It needed to be a quality product that we had to stand behind.”
The company revealed it was adding “state-of-the-art” lubricants to its Australian product range — with a view to extending the life of critical equipment. The new Puma Lubricants incorporate molecular technology and offer “a new level of protection from engine wear.”
“We are very particular about the base oil and additive we use,” says Swinburn.
The finished products are manufactured in Singapore using Group II base oils and blended with additives specifically formulated for Puma Energy by its technology partners. Swinburn says the cost to manufacture lubricants in Singapore through a toll blending arrangement is about half the cost of blending in Australia, although “we are considering other options,” once a particular volume of business has been attained.
The Puma lubricant product range includes passenger car and heavy-duty engine oils, industrial oils, transmission fluids, industrial gear oils, hydraulic oils, coolants and brake Peter fluids, detergents and degreasers.
The company advises that all its lubricant products exceed current automotive and industry specifications, “with diesel engine approvals from leading manufacturers, including Mack, Cummins, Volvo and others.”
Further, “Puma Energy is one of the first to introduce the latest API CK-4 diesel engine oils into the Australian market,” says Ian Ross, Puma Energy Australia’s general manager.
Swinburn says heavy-duty trucks which operate in extremely dusty, extremely high temperature and high humidity in the northern tip in Australia, typically change oils every 20,000 km, while their own fleet observe 35,000 to 40,000 km oil drain intervals. City trucks can typically extend oil drains up to 50,000 km, he says. “You can’t say one size fits all,” Swinburn says.
Puma lubricants have expanded globally over the past three years and are currently sold across Africa, Central America and now in Asia-Pacific, including Australia and Papua New Guinea. Australia is the world’s sixth-largest country in terms of area but with a population of only more than 24 million. Puma’s entry into the Australian lubricant market came at a time when the International Monetary Fund had just slashed Australia’s growth forecast from 3% to 2.2% in its World Economic Outlook. The economy is expected to grow by 2.9% in 2018.
Despite the economy’s forecast downgrade, the Australian automotive market has reported strong recent sales growth. A recent review by ACA Research showed that year-on-year car sales jumped by 4.4% in June 2017, despite low consumer confidence. While you could be forgiven for predicting a correlating increase in lubricant market demand, an earlier 2015 research report by IBISWorld entitled ‘Lubricants and Other Petroleum Manufacturing In Australia,’ predicts that over the five years through to 2019-2020, automotive and industrial oil volumes will decrease.
Poor performance in key end-use verticals such as mining has created “medium-term headwinds to growth,” according to an Australian Industrial Lubricants and Greases Market Forecast to 2020, by ReportBuyer.com. Australia’s mining sector is highly dependent on the health of the Chinese economy, says Swinburn. Since the slowdown in China’s economic growth to under 7%, Australia’s mining sector has experienced a 30% decline in capital expenditures in 2015-16, cruelly limiting the opportunity for lubricants and greases. However, the same 2017 report forecasts growth opportunities in construction, utilities and food and beverage sectors, supporting demand for industrial lubricants such as industrial engine oils, hydraulic fluids and industrial gear lubricants.