The growing demand for used cars in many African countries and the general expansion of the regions automobile market have boosted the prospects for small lubricant blenders in the medium term. However, experts say the fortunes of these lubricant suppliers could change as the popularity of synthetic oils grows in the region.

According to Richard Weissenberg, Frost & Sullivan Africas business unit leader, chemicals, materials & food, Small lubricant blenders compete on price, and their future looks good in the medium term. He attributed this assessment to several factors, including the vehicle market growing at about twice the gross domestic product, an improved economic outlook in many emerging African markets and older vehicles being kept on the road by an expanding pool of owners with limited incomes.

He told LubesnGreases in an email, Small blenders tend to be in the business of supplying low-cost products to owners of older cars. These companies, sometimes called minor lubricant blenders, are typically privately owned. And although a few are engaged in toll blending, their current success is driven mostly by the increasing number of used cars in the market, especially in Kenya, South Africa, Nigeria and Ethiopia.

Country Trends

In Ethiopia, up to 85 percent of the vehicles on the countrys roads are used cars, imported mainly from the Gulf States through the port of Djibouti, according to a report by market consult Deloitte Touche Tohmatsu Ltd. It is estimated that 18,000 vehicles are brought into Ethiopia each year, the majority of them second-hand vehicles, the company stated in its 2016 Deloitte Africa Automotive Insights report.

The report noted that due to Ethiopias tax system, which subjects vehicles to tax depending on their engine size rather than age or origin, it is often cheaper to import a second-hand vehicle with a smaller engine than it is to assemble a vehicle locally. It is estimated that 11.6 percent of registered vehicles in Ethiopia are more than 10 years old.

In Nigeria, the ratio of new to used cars stands at 1:134, according to the National Automotive Design and Development Council. The council estimates 300,000 of the more than 400,000 vehicles imported in 2014 were used. Although the oil-rich country has a vehicle market potential of 1 million new cars, market consultancy PwC says the figure is about 56,000 in a market dominated by used vehicles.

A similar trend is seen in Kenya where up to 80 percent of the total number of vehicles brought into the country are used. Deloitte reported that by 2012, the average age of vehicles on Kenyas roads was 15 years, which resulted in high levels of pollution, frequent break-downs and a large nongenuine spares industry.

Market Outlook

The high number of older cars on Africas roads could help improve the bottom line of small lubricant blenders, who target this market with low-cost products. Small blenders collectively account for 20 to 30 percent of some key markets, so they are presently thriving, said Weissenberg.

But the current lubricant market performance structure in many countries is expected to change in the long term in favor of synthetic oils. According to Total SA, a leading lubricant marketer in the region, synthetics have the advantage of better viscosity performance at temperature extremes; resistance to oxidation, thermal breakdown and sludge; the potential to extended drain intervals; and the environmental benefit of generating less used oil.

The slow but steady rise in synthetic oil demand in Africa, along with an anticipated larger role for original equipment manufacturers, could be a game changer for both small blenders and new car owners keen on improved vehicle performance. Weissenberg said that in the long-term, small lubricant blenders could be squeezed into a declining and aging portion of the market, as more and more cars require synthetic oils, unless local upstream oil players start to produce synthetic base oil.

Modern cars tend to use synthetic lubricants, he said. They need fewer oil changes, but the price of the oils they use is higher. As todays modern engines become tomorrows old, second-hand engines, we will see the proportion of synthetic lubricants in the market rise steadily, he said.

Weissenberg noted, Currently, synthetic oils tend to be recommended for a limited set of vehicles, so retailers will have to carry wider ranges of stock to cover their whole customer base. He added that synthetic lubricants are likely to lead market growth in countries such as South Africa and Kenya in the long-term.

Weissenbergs projection for synthetic oils in key African markets is echoed by India-based market research and information service provider, Ken Research, formerly AM Mindpower Solutions. The consultancy cited South Africa as an example where it reported that the automotive sectors share of the overall market has been projected to increase from 62 percent in 2016 to 63 percent in 2020.

Demand for synthetic-based lubes, especially 100 percent synthetic lubricants, will surge as people in South Africa demand these lubricants for new cars because they extend the life of the engine significantly and also increase the oil change interval, the firm reported. Ken Research estimates that South Africas lubricant market will reach U.S. $1.8 billion by 2020. It cited Petronas Syntium range of lubricants, currently marketed in South Africa and Sudan by the companys subsidiary Engen Petroleum Ltd., as two lubricants that are likely to dominate the sub-Saharan lubricants market in coming years.

Petronas website contends that the Syntium range of lubricants is the next generation fully synthetic ultimate performance multgrade engine oil specially engineered to provide the ultimate engine protection and performance for current and future generation high-performance engines, especially those fitted with emission control devices running under the most extreme, most demanding driving conditions. Engen operates a lubricant blending plant next to its Durban oil refinery, with an estimated production capacity of 72 million liters of finished lubricants annually.

In addition, Ken Research reported that gas-to-liquid conversion technology is expanding in South Africa and is known to produce extremely pure, synthetic crude oil that does not contain contaminants such as sulfur, aromatics and metals. Such lubricants will generate huge demand for high-end cars and bikes in South Africa over the period 2016 to 2020, the research firm said. South Africas lubricants market is dominated by Engen, Shell, BP Castrol, Total, Chevron and Fuchs, which is big in the industrial sector.

Some small lubricant blenders in Africa could be keen on obtaining approvals from leading OEMs, to at least give them a chance to woo more customers who are informed about the quality of the lubricant products they are buying. However, Weissenberg said because a number of small blenders tend to supply low-cost products, OEM approvals arent really an issue for them.

Small blenders thrive especially in countries where base oils are produced locally and have tax advantages over imported finished lubricants or base oils, he said. A significant portion of the base oils used to blend lubricants in South Africa is imported, and this portion has risen with the closure of Engens base oil manufacturing
division, said Weissenberg.

Owners of new and nearly new vehicles will tend to use only products that are specifically approved by their vehicles manufacturer, especially modern cars using synthetic and semi-synthetic lubricants, he added. He concluded by saying, There is no realistic chance of a small blender being selected for factory fill of new engines, and, in any case, Africas assembly plants generally use engines built and filled overseas.