The recent performance of South Africas economy has been characterized by slow growth, technical recession and policy uncertainty, with World Bank forecasts expecting much of the same throughout 2019. However, the countys lubricant players are optimistic that production, supply and consumption of passenger car motor oils and transmission fluids, hydraulic and industrial gear oils, metalworking fluids and greases are growing and the future looks promising. This is despite companies emerging from a period of overstocking, not only in South Africa but across the region.

We do believe that optimism is high and the lubricant market is bouncing back, said Cline Boutier, managing director at Shamrock Shipping and Trading Ltd, a major supplier of base oils and lubricant additives in South Africa for the past eight years.

Although South Africas economic growth impacts the growth of the lubricants market, there are many more factors affecting the market, ranging from the countrys regulatory framework to private and public investments, competition within the industry and the requirements of original equipment manufacturers, she told LubesnGreases.

Despite the recent contraction, which includes some of the biggest lubricant consumers in South Africa, the lubricant industry as a whole seems to be going through a period of reinvigoration, and we are definitely seeing a rise in business confidence and optimism, which is providing a real economic impetus, according to Boutier.

Some of the reasons for this we believe are coming from a rise in political stability through the African Free Trade Zone [and] South Africas increasing involvement with the international community, which is bringing about prospects for investment and decreasing barriers to entry for smaller players [and] will support competition.

Going forward, Boutier said, Shamrock expects South Africas lubricants industry to see more mergers and acquisitions, more small players coming into the market and an increase in local blenders becoming marketers of their own brands.

Pump Up the Volumes

According to Boutier, South Africas lubricants market is estimated at 360,000 to 400,000 metric tons per year, including domestic production and imports, which is 1 percent of the total global volume. Of that, automotive dominates, in a country with a comparatively advanced and young vehicle parc of more than 12 million vehicles and monthly sales of around 40,000 units. Most major manufacturers have a presence in the country, with the biggest number of sales achieved by Toyota. The increasing national population, expanding middle class and accelerated urbanization are likely to drive up car sales and hence demand for automotive lubricant products.

Generally, more lubricants are consumed in the automotive sector in South Africa than in the industrial sector, with the figures standing at 56 percent and 40 percent, respectively, she said. In our opinion, whilst the figures will certainly increase over the next five years – with the increase of car sales, population growth, etc. – the lubricant market split is likely to stay in favor of the automotive sector.

BPs Castrol brand, Shell, Engen and Chevron – which trades there as Caltex – are the top-selling automotive lubricant brands in South Africa, with market shares of 20 percent, 20 percent, 17 percent and 14 percent, respectively. Other leading players include Total (10 percent), Fuchs (4 percent) and Centlube (3 percent).

Most of these companies channel their products through primary and secondary distributors, service workshops, gas stations, automotive retail shops and localized retail shops spread across a country of 57 million people.

The lubricants market has slowly returned to demand levels experienced in 2008, Centlube, the authorized distributor of Mobil lubricants in South Africa, stated in an annual report. However, a bigger focus on…cost saving and energy efficiency is evident, as companies are under extreme pressure to be operationally efficient due to substantial cost increases.

Costs were likely increased by the depreciation of the rand, which has been declining against the dollar for a decade. They could be further impacted by the hike of value-added tax in 2018.

Facing Challenges

Potential demand growth is being satisfied by expansions at plants such as the Island View Terminal facility by Total South Africa and the Isando grease factory by Fuchs Lubricants South Africa.

Fuchs Group anticipated substantial growth in a variety of markets in Africa, specifically in mining, and realized that they would have to increase and modernize the local companys grease-blending capacity to meet future market demands, Mitch Launspach, commercial manager of Fuchs Lubricants South Africa, told LubesnGreases.

However, Boutier warned of existing challenges that could hamper growth of South Africas lubricants market, such as logistical issues, infrastructure backlogs and port storage limitations.

Political instability from elsewhere on the continent, high levels of corruption, continuing low compliance with lubricant product quality and [problems with] access to financing also persist and threaten the growth of the South African lubricants market, added Boutier.

Nevertheless, Boutier said, South Africa has certainly seen a rise in…demand for synthetic-based lubricants, which is being driven by OEM approvals and a rise in newer cars requiring higher-quality lubricants.

Launspach describes the market as resilient. Even though various segments might be going through a slump at any particular period of time, theres usually a least one or two segments that are thriving, or at least surviving.

Current lubricant market trends in South Africa are partly shaped by previous capacity additions and also mergers and acquisitions. For example, Centlube, which in 2018 received approval for its 47 million liter Cera lubricant blending plant in Boksburg to blend products for ExxonMobil, had earlier acquired a 37 percent stake in Zestcor, the distributor of ExxonMobil and SK base oils in South Africa.

Elsewhere, Swiss natural resources company Glencore financed the U.S. $973 million purchase of Chevrons South Africa assets by Off the Shelf Investments 56 (RF) Pty Ltd, which is owned by African Legend Energy Holdings, a Johannesburg-based investment firm. The downstream assets include a 100,000 barrels per day refinery in Cape Town and the 80,000 t/y Island View Terminal lubricant blending plant in Durban, which supplies 11 percent of South Africas lubricants market. The deal was approved by South African authorities in mid-September and the parties completed the transaction later that month. Chevron markets the Caltex brand in South Africa, with its Delo range for commercial, industrial and some marine applications and Havoline for passenger vehicles.

Meanwhile, South African firm Lutramart Oils Pty Ltd bought a 51 percent stake in Blue Chip, which recently built a blending plant and laboratory at Kya Sands to blend lubricants for Q8Oils, part of Kuwait Petroleum Corp.

Treasury Trove

With the Treasury predicting a turnaround of the mining and manufacturing sectors on one hand and an increase in vehicle sales on the other, South Africa looks set to remain a major lubricants hub for international manufacturers.

Meanwhile, some suppliers have expressed a willingness to invest in new capacity and partnerships that are likely to shape the industry into the future. But with a caveat.

Much will depend on economic and political stability, not just locally and within Sub-Saharan Africa, but also within the global economy, said Launspach.