Happy New Year and welcome to 2011.
At the beginning of 2010, I reviewed the changes taking place in the lubricants industry. So what was the actual out-turn?
With lubricants demand closely related to GDP changes, the annual forecasts are always of particular interest. Given the added credibility of having correctly forecast a V-shaped recovery based on the strength of the quantitative easing, Goldman Sachs’ 2011 forecast, published in December, gave a good indication.
In 2010, GDP grew in the US by 2.1%, slower than forecast but better than the shrinkage the previous year. Euroland and Japan saw GDP growth of 1.5%. This masks a strong recovery in Germany of 3.5% in 2010 leading to speculation that Germany might become an addition to the BRIC group on the basis of its astounding export-led engineering recovery.
Last year saw the continuation of an economic power-shift towards the East. China, of course, powered forward with growth of 10% and India too at 8%, though in both countries inflation is now close to the growth rate.
In 2011, global growth is expected to be around 4.5% and we can look forward to a recovery in the US, of around 3%; Euroland 1% as austerity budgets bite. In Asia, China will lead the way with up to 10% growth, India at 6% and with ASEAN at 4% overall – though 6% in the emerging ASEAN territories. The US lubricants market should bounce with industrial recovery, likewise the main European markets will recover.
For the lubricants industry, this means following economic growth and increased sensitivity to industrial production as these economies become more developed. We have seen the Chinese vehicle production and car market exceed the US for the first time. The forecasts imply commodity price tightening, including oil, will begin to push up Base oil prices again; China and India will continue to drive the lubes markets with solid growth across all the Asian markets.
We can expect to see a continuation of the traditional oil majors increasing their investments in the high growth territories, whilst divesting of slow growth market operations to Distributors or Super Distributors. This appears to leave market space for resurgence of those independents who have survived the shrinkage and, of course, the National Oil companies who are taking up the slack.
None of this, however, allows for Taleb’s ‘black swan’ events; those rare and hard to predict events that have a disproportionate impact on a geography, industry or economy - the Deepwater Horizon disaster being a case in point.
If the UK Observer newspaper’s ‘black swan’ predictions are anything to go by, oil will exceed $100/barrel before finishing the year at $70 and natural gas prices will leap 50% helping the Russian stock market to double in value.
This next year should be interesting.
Sebastian Crawshaw, Chairman OATS