The Vietnamese lubricant market has become a more crowded field over the past decade. According to the market research firm Kline & Co., Castrol Vietnam still controls the largest share of the pie with a 29 percent market share. Other companies with a significant presence in lubricants are Petrolimex (18 percent), Shell (12 per-cent), Total (5 percent) and Caltex (2 percent). A host of other outfits, both local and international, make up the rest of the lubricants market.

While Vietnam is still not a well-established player in the global market, the volume of finished lubricants it produces is rising quickly. Kline pegs the volume of finished lubricants at 310,000 metric tons in 2011, and expects moreover that lubricant market volumes will rack up an average 3.5 percent to 4 percent annual growth over the next 10 years.

The lubricants market is dominated by automotive lubes, which make up 72 percent of total demand. That includes 42 percent commercial automotive lubes and 30 percent consumer automotive. Industrial lubricants also account for a substantial part of the market, at 28 percent.

Flocked with Suitors

Castrols grip on the market increased in 2007 when it formed a joint venture with the Vietnamese-based Petrolimex. The newly formed company, Castrol BP Petco, produces a wide range of lubricant products including automatic and manual transmission fluids, chain lubricants and waxes, coolants, suspension fluids, brake fluids, greases, cleaners and maintenance products.

Castrol and Shell have been operating in the Vietnamese lube market for years and thus have an advantage in both market share and networking capital – the latter of which is crucial to doing business in Vietnam.

This does not mean that there are no other competitors though. Frances Total is an emerging player in the Vietnam market and has singled out the country in its regional growth strategy. In 2009, Total, currently the fourth-ranked lube company in Vietnam, acquired ExxonMobils lubricant assets there, indicating a serious corporate push into the Southeast Asian nation. This has led to Total labelling Vietnam as it second-priority market in Asia after China. Total Vietnams director, Jean Nehlil, has indicated that his company intends on maintaining steady growth in the operation, including a strategic goal of doubling its production of lubricants and liquefied petroleum gas by 2016. Nehlil asserted in 2011 that Total is committed to staying in Vietnam for the long run.

Chevron subsidiary Caltex is another company with a significant presence in Vietnam. Its plants in the country produce two motorcycle oils – Havoline Super 4T and Havoline Power 2T – that are designed for engines requiring JASO and API-grade lubricants. Caltex also produces gasoline engine oil and diesel engine oil for automobiles in the country.

Newcomers: JX, Idemitsu

Vietnam also is enjoying the attentions of Japanese petroleum companies JX Nippon Oil & Energy and Idemitsu Kosan. Idemitsu in 2011 identified having operations in Vietnam as a part of its core business strategy, and last August made its ambitions more concrete with the creation of its local manufacturing affiliate Idemitsu Lube Vietnam Co. Ltd.

According to company officials, Idemitsu Lube Vietnam will construct lubricant blending facilities on a 60,000 square meter site in Haiphong City in the north, with manufacturing capacity for 35 million liters of lubricants per year. The plant is due to begin operations in January 2014. Idemitsu Lube Vietnam will have $23.3 million in registered capital and will focus its production efforts on engine oil for motorcycles, automobiles, general industrial lubricants and other related products.

August also heard that JX Nippon would soon open a blending plant in the industrial city of Haiphong. JXs plant, which had its groundbreaking in November, will grow to have a manufacturing capacity of 40 million liters of lubricants per year when commercial production begins in early 2014. The new plant will have $10.1 million in registered capital, approximately 100 employees, and also will focus its production efforts on engine oil for motorcycles, automobiles, general industrial lubricants and other related products.

As every one of these marketers offerings show, the big action in Vietnam is selling engine oil for two-wheelers, which outnumber their four-wheeled brethren by about 20 to one. More than 34 million motorcycles, scooters and motorbikes now crowd the roads, mostly with 4-stroke cycle engines.

The Ministry of Transport calls Vietnams motorcycle fleet indispensable, but says most are not well-maintained or repaired with any regularity. Few are equipped with emissions control systems, either. To combat the high levels of air pollution, the Ministry adopted Euro 2 emissions standards for new motorcycles beginning in 2007, and will advance to Euro 3 controls beginning with the 2017 models. Fuel sulfur levels also must come down, effective January 2016.

Investment Challenges

Despite the growth and potential for foreign lubricant companies in Vietnam, there are also a host of challenges. Hanois growth has led to high inflation that peaked near 20 percent in 2011. Moreover, the consumer price index in the country also hovered between 15 and 20 percent last year. However, the government has taken strong steps to curb this pressure, and Vietnamese Prime Minister Nguyen Tan Dung recently indicated that inflation in 2012 would be about 7 percent and next year [2013] we will have even better control of it, at about 6 percent. Vietnam is hopeful that its efforts to lower inflation and the CPI, through reining in its maligned banking industry, will promote higher levels of foreign investment in a range of sectors – including the important area of petroleum.

The price of engine oil in Vietnam remains stubbornly high. According to Petrolimex, the cost of one liter of engine oil reached as high as 20,000 Vietnamese dong (approx. U.S. $1) in 2011. While low by Western standards, this was nearly a 20 percent increase from 2010.

The economy in Vietnam is likely to be fragile as the government tries to balance the need to tighten credit lending while simultaneously ensuring that these moves will not stifle demand and new investment flows. Some lube companies operating in Vietnam seem to recognize this threat and have actively addressed the big picture.

Speaking to local press, Totals Nehlil described the competition in Vietnams lube market as fierce but fair, and noted that his company made the decision in 2011 to reduce selling prices of our lubricants by 1,000 VND a liter, or approximately 5 cents.

Risky for Business

Another troubling issue for companies doing business in Vietnam is the lingering presence of corruption among government officials and private entities. In November, the World Bank released a comprehensive report detailing Vietnamese perceptions of the governments efforts to curb corruption. According to the report, corruption of public officials, business officials and citizens is the second-largest concern (high cost of living being the number one concern). This will continue to be a priority going forward for the government and will be closely followed by foreign investors with an eye to Vietnam.

Finally, companies are increasingly alert to international events in Southeast Asia and the implications on the business environment in Vietnam. For example, the acerbic war of words between Vietnam and China over maritime sovereignty in the South China Sea could potentially threaten the appetite of foreign investors. Beijing has formally demanded that Hanoi stop its oil and gas exploration in the maritime zone and has even gone as far as to cut the cables of some Vietnamese vessels.

Despite these challenges, the future is bright for lubricant companies in Vietnam. There is already an established foothold for foreign brands in the country, and there are mostly positive indicators that Vietnam will continue its economic reforms to cater to more foreign investment. The recent moves by the government to curb inflation should be welcomed and could help the lubricant market provide a competitive product and reasonable prices to the domestic consumer.