| |
Chemical lubricating oil additives (LOAs) are used to enhance the performance of lubricants and functional fluids. Each additive is selected for its ability to perform one or more specific functions in combination with other additives. Selected additives are formulated into packages for use with a specific lubricant base stock and for a specified end-use application. The largest end use is in automotive engine crankcase lubricants. Other automotive applications include hydraulic fluids and gear oils. In addition, many industrial lubricants and metalworking oils also contain LOAs. The major functional additive types are dispersants, detergents, oxidation inhibitors, antiwear agents, extreme-pressure (EP) additives, and viscosity index (VI) improvers.
This report defines the business as including only sales of LOAs to lubricant manufacturers. Therefore, sales of individual additives to LOA suppliers (whether internal transfers, trade among LOA suppliers or merchant purchases) are classified as raw material acquisitions and not as sales of LOAs. Excluding such transactions avoids double-counting. In accordance with this definition, the estimated total consumption of LOAs for 2004 worldwide was over $5.4 billion. Further price increases during 2005 will increase the worldwide value of the LOA business to over $6 billion. Consumption of LOAs in North America, Western Europe and Japan amounted to nearly 2 million metric tons, valued at $3.6 billion.
The following pie chart shows consumption of lubricating oil additives by major region:
The LOA business is dominated by four multinational companies, some of which are or were linked to the major oil companies. They are Chevron Oronite Company LLC (owned by Chevron Corp.), Afton Chemical Corporation, The Lubrizol Corporation and Infineum (a joint venture of Exxon Chemical Company’s Paramins Division and the combined petroleum additive businesses of Shell International Chemical Co., Ltd. and Shell Chemical Company). These four mainline suppliers offer packages of formulated components, most of which they captively manufacture. Three of these large suppliers are headquartered in the United States, where a large share of the manufacturing is also conducted. Thus, the United States is a very large net exporter of LOAs to other world areas, especially Japan, which imports most of its products. Nevertheless, smaller Japanese producers of LOAs have a larger share of the Japanese market than other smaller producers do in their domestic markets.
The number of major worldwide suppliers of multiline components was reduced from eight to four in the 1990s. This consolidation reflected the relatively poor financial performance of the industry in that decade. In turn, this condition reflected the strong competition among LOA suppliers and their inability to fully recover the high costs of providing new additive packages that were required to meet the rapidly changing requirements of end users. Although the field of LOA competitors was narrowed significantly, there was little improvement in their economic performance.
To be successful, these multinational companies must now have a significant market share in all world regions. Furthermore, they must be able to spread the high cost of R&D and testing of new packages over a broad range of product types, market segments and geographical regions. They must also have close relationships with their customers that have been nurtured over many years. R&D costs in the LOA industry are high (up to 10% of sales), because success depends on the ability to modify chemicals to enhance the specific function they perform, to formulate packages of these chemicals to maximize their cost-effectiveness, and to carry out lengthy and very expensive tests to verify that the products meet the required specifications for the finished lubricants. These costs are increasing further as the specifications for these products change more frequently to meet new industry standards.
Thebestgrowthopportunitiesareinthe rapidly growing Asia Pacific market. Assuming improvements in political and economic stability, growth should also be better in Eastern Europe, including the countries of the former USSR, as well as in other less-developed world areas. Companies that are well established in these locations are in the strongest position to take advantage of these opportunities. Growth rates for the LOA business in the developed world, where the market is highly mature, will remain minimal. The most important considerations in the most economically developed regions are the changing technology in the end-use industries (e.g., automotive engine design), government regulations (e.g., lower emissions and higher mileage) and the need to provide the attributes that the end-use industries or lubricant manufacturers wish to promote in their marketing strategies (e.g., longer drain intervals and lower maintenance costs).
|
