LOCAL REPORT Russia Paul Stephenson & Artem Mazaev, OATS Ltd
Covering an area of some 17 million square kilometres and with a population of almost 147m, Russia is the largest of the 15 independent states created after the dissolution of the Soviet Union in 1991.
Since a growth peak of 8.5% in 2007, Russia’s GDP has fluctuated and last year’s 2.3% improvement, at $1.65 trillion, may be significantly slower by the end of 2019. The geopolitical climate, combined with US-led sanctions, has created something of a “Russia First” approach, allowing national oil and lubes producers to flourish.
The vehicle parc, manufacturing and sales Russia’s vehicle parc in January 2019 was 52m vehicles, excluding off-highway, of which 80% were passenger cars. While the age of the passenger car parc averages 13 years old, more than half of the country’s LCV and HCVs are more than 20 years old.
New car sales have gradually declined since a record high of 2.8m units in 2012, although 2019 is forecast to accelerate slightly at 1.6m units. The market is dominated by local brand, Lada, owned by AvtoVA, followed by KIA and Hyundai. Domestic manufacturer, KAMAZ, accounts for more than 50% of new HCV sales.
Annual car production capacity is more than three million vehicles, although only 1.5m were produced in 2018. As well as domestic OEMS, such as AvtoVAZ, UAZ and Chinese-backed Haval, many global automakers have local assembly plants including VAG, PSA, and Toyota. While Ford has closed its car operations, it retains a light commercial vehicle presence.
Base oil production With massive oil and gas reserves, Russia is the third largest oil producer at circa 11mb/d. Following the end of the Soviet Union, Russian base oil capacity was an estimated 4.2m tonnes, but currently stands at 2.38m tonnes operating at around 87%.
Historically, base oil production was focused on Group I. More recently, volume leader Lukoil Group, along with competitors Rosneft and Gazpromneft, have been refining Group I, Group II and Group III base stocks. However, Russian crude contains relatively high sulphur levels, making Group III production technically challenging.
60 LUBE MAGAZINE NO.154 DECEMBER 2019
Lubricants production and market The lubricants market is slowly transforming from Soviet-style economics to an open market, with strong viability for local lubes producers, predominantly subsidiaries of the Russian oil majors. Global brands with local blending operations – Shell, Fuchs and Total - take most of the remaining market share, with additives largely imported.
Overall, around 60 lube brands are marketed in Russia, with demand estimated at 1.6m tonnes. Industrial lubricants account for 45%, CVs for 36% and passenger cars 19% of the total market. Russian imports of automotive and industrial lubricants are showing slight annual growth since 2016 at 270k tonnes, with brands including Mobil, Castrol, ZIC, Total Elf and LiquiMoly.
Because of the ageing vehicle parc, 5W-X lubricants are in highest demand, although 0W-X products are gaining ground with synthetic and semi-synthetic lubricants now taking more than 60% of Russia’s passenger car market, but just five percent of industrial speciality lubricants.
OEM-branded lubricants are mostly sold as first-fill or warranty products, with Lukoil the leading supplier. However, some OEMs are trying to generate aftermarket traction, including Renault’s Motrio and Peugeot’s Eurorepar. Lubes are generally sold via traditional channels: dealerships, aftermarket workshops and retail outlets, but internet sales are showing steady growth.
In Summary
Whilst largely following the global trend of high-performance synthetic lubricant growth, Russia is being held back by an ageing vehicle parc and slow industrial adoption.
Yet the Russian market is one of the largest and most competitive globally, with total lubricants volume expected to reach almost 1.8m tonnes by 2026. This should provide considerable opportunities, particularly to Russian producers and global manufacturers prepared to invest in local production and distribution infrastructure.
LINK
www.oats.co.uk
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