GM pool balanced between automotive and industrial businesses. Marketers and Trade participants will continue to outpace others, and the moderation of growth in China and pull-back in Brazil and Russia certainly means that in the near term we need to focus more on the rateability of earnings that is more achievable in our core North American and some European markets. Nevertheless, 60% of new value will still come from Asia Pacific and selected areas of the Middle East. The Americas contribute 24%, followed by Europe and Africa with only 16% as margin gains from quality up-trading are being offset by declining or stagnant volume.
Acting now to sustain for the long term…
As a consequence of weakened crude oil and base oil costs, we are in a near-term period of peak lubricant margins and earnings relative to the business cycle, riding well above the long-term trend line. This is driving a wave of consolidations and new investments that for the next few years will position the lubricants business for even stronger
earnings power. As the European home-based market and competitive challenges mount, the flight to growth in Asia, Africa, Middle East, and even the Americas becomes an imperative. Europe is ripe for more consolidations to improve operating scale and reduce costs, and at the same time the current financial climate will support selective
initiatives to leverage European brands and technology abroad. The reach of Western European marketers into Eastern Europe, Central Asia, and the Middle East has been enabled by an aggressive group of terminal operators and trading companies that are based in the strategic supply & logistics hubs of Rotterdam, Antwerp, Hamburg, and Turkey.
For the outward bound, five challenges…
National Oil companies have become more competitive since the leading lubricants technologies, and in particular the formulation of synthetics, is available to all players. The challenges of Globally Harmonized System (GHS) and lack of labelling harmonisation in some growth markets drives a complexity of product brands and Stock Keeping Units (SKUs) as registered in costs. Europe still has a sizable direct business compared with growth markets, and the challenge is to learn how to build distributor networks that are strategically aligned with marketers and will execute well their marketing and trade programs. Another challenge is to understand the complexities of market-based pricing to achieve profit goals. And finally, relationship building with regional and global OEMs and strategic accounts calls for a greater direct presence in Asia Pacific, and potentially investment in local technology centres.
The new competitive balance… Leading independents are reaching beyond their legacy borders to find growth. Independents are now armed with leading technology and cost advantages that have literally caught the majors off guard. While majors have been preoccupied with their upstream businesses, and have generally constrained lubricant investments to
LUBE MAGAZINE NO.131 FEBRUARY 2016 23
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