Supply Chain Management

Automotive Lubricants
Supply chain

Barath.M.V 07MBI020 Batch-D

Introduction: The lubricants industry is well on its way to becoming a global business. Major internationalfirms like ExxonMobil, Shell, BP, and Chevron are getting even larger and account for an evenmore significant market share of the global lubricants business, which is estimated at 38.5 million tons in 2006. Most of these major suppliers are now also managing their lubricants business on a global basis. Clearly, some regions will enjoy significant growth while others willdecline. From a volumetric standpoint, the Asia-Pacifc region is expected to continue to show the most robust growth. Against this backdrop, economies of scale are an advantage that the leading players seek inthis very competitive market. This has led to erosion among the midsize and "me-too" playersand increasing polarizationthat is, a move toward large and very large marketers on the onehand and small niche suppliers on the other. Competition is therefore no longer limited to local,regional, or even national markets but is increasingly becoming global in nature. Altogether, more than half of the world lubricants market has been part of such a concentration. Industry consolidation continues to have a major impact on company market share and ranking, on manufacturing and business economics, on base oil supply positions, and on the competitive environment. Therefore, it has become even more important to monitor the marketshares, strategies, positioning, advertising and promotion budgets, supply chain synergies, andoutlook of these players on a global basis. Apart from important applications in internal combustion engines, vehicle and industrial gearboxes, compressors, turbines or hydraulic systems, there are a vast number of other applications which mostly require specifically tailored lubricants. This is illustrated by the numerous types of greases or the different lubricants for chip-forming and chip-free metalworking operations which are available. Between 5000 and 10 000 different lubricant formulations are necessary to satisfy more than90 % of all lubricant applications.

If one thinks of lubricants today, the first type to come to mind are mineral oilbased. Mineral oil components continue to form the quantitatively most important foundation of lubricants. Petrochemical components and increasingly derivatives ofnatural, harvestable raw materials from the oleo-chemical industry are finding increasing acceptance because of their environmental compatibility and some technical advantages. Lubricant Sales: Lubricants today are classified into two major groups: automotive lubricants andindustrial lubricants. Industrial lubricants can be sub-divided into industrial oilsand industrial

specialties. Specialties in this case are principally greases, metalworking lubricants and solid lubricant films. Process oils are often included in lubricant statistics. These are oils which are included as raw materials in processes, but above all as plasticizers for the rubberindustry. Process oils only link with lubricants is that they are mineral oil productsresulting from the refining of base oils but they often distort lubricant consumption figures. They will not be covered in this book. However, to provide a degree of comparison, they have been included in the following lubricant statistics. In 2004, 37.4 million tons of lubricants were consumed worldwide (53 % automotive lubricants, 32 % industrial lubricants, including related specialties, 5 % marineoils, and 10 % process oils). Of total industrial lubricants, 37 % were hydraulic oils,7 % industrial gear oils, 31 % other industrial oils, 16 % metalworking fluids (including temporary corrosion preventives whose multipurpose function often includeslubrication), and 9 % greases.

Table 1.1 Regional breakdown of world demand for lubricants

Table1.2 Per-capita consumption of lubricants in 2005

Global per-capita consumption decreased from 8.8 to 5.6 kg per year between1970 and 2004, i.e. the increase in lubricant demand (+ 12.3 %) did not keep upwith the worldwide growth in population (+ 72.5 %) during this period. Since 1975, quantitative lubricant demand has significantly detached itself fromgross national product and also from the number of registered vehicles. This quantitative view, which at first glance shows a continuous decline in lubricant volumes,gives an inadequate impression of the significance of the lubricants business today. In almost all areas, products now have a longer life and offer greater performance,i.e. specific lubricant consumption has declined but specific revenues haveincreased noticeably. This is also confirmed by the volumetrically very importantgroup of engine oils: the doubling of requirements with extended oil change intervals in recent years have quadrupled the cost of such oils. The efforts to increase thelife of lubricants are not based on the wish to reduce lubricant costs. Much moreimportant is the reduction of service and maintenance costs which result from periodic oil changing or regressing. As about 50 % of the lubricants sold worldwide end in and thus pollute the environment, every effort is made to minimize spillages and evaporation. An example isdiesel engine particulate emissions, about a third of which are caused by engine oilevaporation. These high lubricant losses into the environment were behind thedevelopment of environmentally friendly lubricants which are thoroughly coveredin this book. A further incentive to reduce specific consumption is the ever-increasing cost ofdisposal or recycling of used lubricants. But this again creates new demands onlubricants because reduced leakage losses means less topping-up and less refreshingof the used oil. The new oils must therefore display good aging stability. Bearing in mind the growth potential in Asia where per-capita consumption in some areas is extremely low (2004: India 1.1 kg, China 2.9 kg) and a continuingreduction in volumes or stagnation in Western industrialized countries, overall amodest global growth is forecast. This has been estimated to be 0.5 % p.a. between2005 and 2010 [1.2, 1.4, 1.5]. The growth in value will be more pronounced becausethe rapid globalization of technologies will promote high-value products even in thenew lubricant markets such as China, India or Indonesia and the machines andplant used in these countries will be similar or identical to those used in the developed industrialized countries

Supply chain :

Technical Trends Major influences on lubricant product quality in the automotive and industrial sector includesuppliers product differentiation, consumer quality preferences, original equipment manufacturers' engineering trends and oil specifications, environmental regulations, productpricing, and supply/distribution issues. The impact of these factors on current and forecastproduct quality was evaluated based on the extensive experience of project members and theperspective of market participants. This analysis focuses on the service grade an d viscosity preferences of the major automotiveapplications: gasoline engine oils (GEO) and dies el engine oils (DEO). Key technical trendsrelating to automotive gear oils (AGO), motorcycle oils (2-T and 4-T), automatic transmissionfluids, and marine engine oils (M EO) are also discussed. For industrial products, general qualitytrends for greases, hydraulic/circulating oils, and metalworking fluids (MWF) are

identified. The likely future requirement for hydro-processed, rather than solvent-refined, oils in the regionis addressed in light of the country-level analysis of technical trends. Lubricant and Base Oil Demand Forecasts Forecast of lubricant demand incorporates numerous factors of which the mostimportant is the underlying historic demand pattern of the individual countries, and its relationship to micromarket and macroeconomic indicators. In practice, a preliminary assessment of 1999 demand for commercial lubricants was performed prior to fieldwork. Thisperspective was then compared to actual sales history during the course of fieldwork, and anunderstanding of the influence of product quality trends and micromarket influences wasdeveloped. The final forecast considers these local factors, as we ll as regional dynamics such asthe actions of Japanese OEMs and lubricant suppliers.Base oil demand and base oil quality requirement s were determined from the forecast lubricantdemand and discussions with industry participants. National Production Analysis Production analyses include the development of detailed profiles of current lubricant base oilmanufacturing and finished lubricant blending capacity for each country in the region. Publisheddata, used to enhance in-house database, was verified during fieldwork. Inaddition, firm planned, as well as speculative base oil and lubricant blending capacity additions were identified. The actual 1999 lubricant blending production rates were estimated andcompared to consumption, imports, and exports to determine net trade of base oils and finishedlubricants at the country level. Forecast net trade of base oils and finished lubricants weredeveloped, consistent with projected future capacity additions. In addition, the influence of used oil recycling and re-refining activities are addressed.

Reference:
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