Lubricant industry growth flat or marginal

By Lalin FERNANDOPULLE

The growth of the lubricant industry for the past 15 years has been four percent said Chevron Lubricants Lanka PLC Managing Director/ CEO, Kishu Gomes.

He said since mid 2009 the lubricant market recorded a fast phase of recovery with approximately a 12 percent year- on- year growth in 2010 over 2009.

However, the industry could not sustain such high growth rate due to various factors which led a very marginal industry growth of mere 6 percent last year.

There has not been a major change year-todate suggesting that it would be marginal growth again or flat industry growth.

“While the significant new vehicle population growth, expansion of industries and new investment in the construction and manufacturing sector expand the market size, high technology with extended oil drain intervals leads to market contraction in terms of volume”, Gomes said.

The lubricant industry which is a vital cog in the economy recovered from a lull when opportunities opened in the North and the East, industry experts said.

The country requires around 55 million liters of lubricants a year and at present 16 operators are vying for a share of it.Chevron and Lanka IOC operate their own manufacturing plants here in the country, with Chevron producing 98 percent of its local requirement.

Gomes said that new engines are far more advanced to benefit fully from the evolving lubricant technology. In some product segments, the oil drain intervals have almost doubled. Continuous R&D efforts by global lubricant companies in collaboration with the Original Engine Manufacturers have led to this development in every single market across the world.

In the United States, the average car owner changes his/her oil at just less than 5,000 miles. Conversely, in Europe the average oil change interval is more than 10,000 miles.

“Given the complex macro environment and the recent increase of duty on motor vehicles, a marginal growth is expected in the industry. Ailing public transport sector will not help the industry growth. With reasonably good rainfall in the catchment areas, the need for thermal power will be reduced negatively impacting the industry.

Further, the lubricant consumption by the three forces has dropped sharply since the end of the war”, he said.

Vehicle sales have dropped due to the high import duty which has been passed on to buyers.The import duty on cars has gone up from 120-291 percent to 200-350 percent; on three-wheelers, it has gone up from 51-61percent to 100 percent, and on two-wheelers, from 61percent to 100 percent.

Gomes said that the depreciation of the rupee would impact any industry that depends on imported raw materials or finished goods.

Out of the 14 players operating in a small market such as Sri Lanka, only 2 players have real local value addition through local manufacturing ( IOC and Chevron). Being a non-petroleum manufacturing country at present, dependence on imported raw materials poses a huge challenge to all the lubricant players alike.

The problem is compounded when duties and taxes are calculated at a higher CIF value. Effective cost increase as a result is over 15 percent.

“Chevron is forging ahead with its growth plans with greater concentration in Bangladesh and Maldives to drive volume and margin growth. We will be introducing new formulations for the local market to offer an improved value proposition to the consumer. Expansion of our retail distribution network via channel brands is well underway. Enhanced value package to the commercial and industrial customers will be offered”, he said.

We will support regulators to curb product adulteration and various other wrong doings by certain organized groups which leads to loss of revenue to the government and misleading of the consumer.