By Aaron Stone
Ten long years have passed since the global financial crisis (GFC) sent the world’s financial markets into turmoil, sparking the most serious downturn to hit the global economy since the Great Depression of the 1930s. This monetary meltdown, caused by deregulation in the financial industry, delivered long-lasting impact throughout the entire world — which are still being felt. Among the most heavily affected regions were Europe and the Middle East, which experienced declines in total GDP of 10-20% in 2008 to 2009, according to the World Economic Outlook.
While global output has grown moderately over the past few years, the economic revival has been delicate and imbalanced. Asia and North America have experienced considerable uplift since 2009, however, Europe remains firmly on the path to recovery from the GFC and an ensuing sovereign debt crisis affecting several of its member states. Despite moderate GDP growth since 2012, output only reached pre-recession levels in 2016, according to figures released by Eurostat, the European Commission’s statistical arm.
Shadowing this modest economic upturn, the European lubricant market strengthened slightly in 2016 to an estimated 3.825 thousand tonnes market volume — a 0.8% increase on 2015.
Though a rise in the market volume of European lubricants is a positive headline for lubricant businesses, the impact of the recession still weighs heavily on many parts of the industry. If you peel back the layers you will see a significant variance in the stages of recovery and growth in each country. Moreover, the current reality of the European lubricants industry is far more complex than financial market impacts.
The Union of European Lubricants industry (UEIL) represents the interests of the lubricants industry in Europe, with “a particular focus on SME’s and inde-pendent companies that produce lubricants and metal processing fluids essential for the automotive and industrial sectors.” UEIL plays a central role in providing reliable market data to businesses, individual countries and policymakers to support a deeper understanding of the European lubricants market.
For the first time, UEIL has published comprehensive European market statistics following the release of a UEIL Industry Statistics report detailing the vagaries of the European lubricant industry. The statistics include official data from 18 of Europe’s member countries, supplemented with estimates by way of a sophisticated algorithm. Apu Gosalia, VP Sustainability & Intelligence from Germany’s Fuchs Petrolub, has recently been appointed as chairman of the UEIL Industry Statistics Committee — to lead the ongoing development of their data model.
Europe has suffered steady declines (-30%) in the consumption of lubricants since the turn of the century, well before the GFC, despite population growth of 6% in the same period. Declines reflect a leadership approach to improving lubricant performance and an ongoing trend to lubricant efficiency as synthetics become widespread in automotive, industrial and metalworking applications. Per capita consumption of lubricants in Europe in 2016 was calculated at 8 kilograms (kg) per person, down from around 12 kg in 2000, according to UEIL’s report.
If not for an increase in Europe’s vehicle fleet offsetting the trend to efficiency and preserving automotive lubricant demand, declines could have been more pronounced. In 2015, the number of vehicles in use in the European Union’s 28-member states increased by 2% to more than 300 million vehicles, according to the Organisation Internationale des Constructeurs d’Automobiles (OICA).
While these headline trends are instructive, it is only when you scratch beneath the surface that you gain a true reflection of what is really going on in Europe.
Overview of key markets
Germany is the largest lubricant producer in Europe boasting a steady economy that recovered quickly from the lows of 2009. The country is a front-runner in the EU and renowned for its sophisticated engineering sector and lubricant innovation, though some of their industry-leading efforts come at a cost. The production of downsized modern engines with significantly longer drain intervals has had a notable impact on lubricant volumes, despite strong automotive sales growth. A higher volume of automotive transmission oils has provided some respite, the product of increasingly sophisticated automatic and double clutch transmissions with recommended drain intervals.
Strong industrial sector growth in the region has boosted metalworking fluid volumes in 2016, though industrial lubricants such as turbine oils, hydraulics and general machine lubricants have also experienced volume reductions owing to longer drain intervals.
Despite a general weakening in lubricant usage, UEIL predicts a stable market for Germany — citing the region’s expertise in delivering innovative and tailored products, especially in SME companies, as well as high demand for simple lubricants.
While the German outlook may be optimistic, the United Kingdom (UK) has a grey cloud of uncertainty hovering overhead. The impact of the Brexit vote of June 23, 2016, will have on the British economy is largely unknown, although lubricant sales in the immediate term appear unaffected by this economic uncertainty. Total sales have increased, albeit marginally, in 2016. Automotive engine oil volumes are up, piggybacking on a 17-year high in the UK car manufacturing sector, helping to reverse some of the declines of the late 1990s and 2000s. In particular, initial fill oils have increased, while automotive gear and transmission oils have plateaued. The overall rise has helped offset technological advances in oil drain intervals.
Heavy industry declines, utilization of advanced base stocks, and extended lubricant life, have all underwritten declines in industrial oils in recent years, although the UEIL predicts these declines will level off with an apparent resurgence in the UK’s industrial sector.
Italy is one of the biggest players in Europe with a lubricant volume of more than 400 thousand tonnes in 2016, with more than half attributed to its industrial segment. However, with an estimated vehicle fleet of more than 40 million, Italy’s automotive sector shouldn’t be underestimated.
Speaking at the UEIL Annual Meeting in October 2017 in Bologna, Italy, Gianluca Fenaroli, the president of the Italian Lube Organization (GAIL), categorized the Italian lubricant market as an “extremely competitive environment.” Ten companies are competing for 70% of the market (the major players are ENI, Petronas, which bought FL Selenia SpA in 2007, and TotalErg, the joint venture between TOTAL and ERG which was created in 2010, with the remainder scrapped over by hundreds of small businesses. A preference from Italian consumers for full service means a significant volume of independent garages and spare services are also playing in the market together with OEM resellers.
Italy has endured the worst economic crisis in its history, though economic indicators suggest the healing has begun. Sales of lubricants continued to drop from 2013 until 2015, whereas in 2016 total inland demand for lubricant oils rebounded by about 5% to more than 400,000 tonnes. Automotive engine oils are leading the way, off the back of higher vehicle purchases and manufacturing, with an estimated growth rate of 8% in 2016.
Small to medium businesses play a leading role in Italy’s fragmented Industrial market, much more so than throughout the rest of Europe. Italian businesses will be hoping a small rise (1.5%) in industrial oil sales volumes in 2016 (to 172 thousand tonnes) is a sign of things to come, erasing the steady declines to 2015.
A peculiarity of the Italian market is the existence of an excise duty of EUR 800 (USD 942.45) per tonne on lubricants. Fenaroli notes that this creates a market distortion and misalignment with other EU countries.
Automotive lubricant sales in France account for half of total lubricants sold. From 2015 to 2016 sales of automotive lubricants increased by 1.4%, to 287,907 tonnes. Passenger car lubricant demand fared slightly better with lubricant demand up 2.1%. Industrial lubricant sales increased 1.3% in the same period, with hydraulic transmission lubricants and metalworking producing the bulk of sales. After a year of “strong and positive economic growth,” UEIL forecasts economic activity to gently accelerate — despite a warning that rising headline inflation may dampen private consumption growth.
The combined efforts of Italy, Germany, France and the UK make up the lion’s share of lubricant demand in Europe, however many notable trends are occurring in other member states and are critical to a detailed understanding of the market. The big movers in the past 12 months are Italy, Finland and Spain.
Spain’s lubricant market increased by 4,458 metric tonnes in 2016, an impressive 6% rise. An almost 350,000 vehicle increase from 2014 to 2015 has sustained a corresponding increase in automotive oils and greases, offsetting declines in Spain’s industrial market.
Automotive engine oil growth and a boost in industrial oils and greases has contributed to a nearly 4,000 metric tonne (8%) increase in Finland’s lubricant market volume in 2016.
Portugal enjoyed a moderate increase in lubricant volumes to 78,421 metric tonnes in 2016, despite stalling GDP growth. Automotive oils and greases were up 5%, balancing declines in industrial oils and greases (-1%), and process oils (-9%) within the sovereign state. Denmark experienced a small increase of 1% in 2016. Strong growth in automotive oils and greases (+4%) countered a fall in industrial oils and greases (-1%).
The trend for many other EU block countries is not quite as rosy. While Sweden’s economic growth remains strong, sitting above 3%, and the region has realized a 14% increase in vehicle population from 2005 to 2015, the Nordic country has experienced accelerating declines in lubricant sales volumes in the past couple of years. Newer vehicles, longer drain intervals and a commendable appetite for synthetics are all contributory. The UEIL suggests demand for quality will compensate for some of the falling volumes in this higher quality market.
The Netherlands lubricant market took a double hit during the economic downturn and production per capita has only recently returned to 2008 levels. Significant market changes have occurred in the region with major players reorganizing supply, closing blending and manufacturing facilities and restructuring sales channels. A slight growth in the lubricant market reflects positive market developments, though a further reduction in sales volumes is anticipated due to superior base oils and longer service life.
Recovery in Greece is expected to restart this year. 2016 delivered a 4% market volume decline to 40,685 metric tonnes following low GDP growth, with decreases across the board for automotive oils, industrial oils and greases (-3%) and processed oils (-12%).
An improved labour market and investment climate are expected to strengthen Belgium’s economic growth over the next two years, however, the lubricants market declined by 1% in 2016 to just shy of 80,000 MT. Admittedly, automotive oils and greases were slightly up, however they were unable to restrain a drop in industrial and process oils.
Poland confronted a similar outcome as Belgium with a 1.7% decrease in lubricating oils, albeit on much larger volumes of 223,101 MT. However, the Polish Organisation of Oil Industry and Trade (POP-iHN) believes the market remains stable following two previous years of growth.