Visiting Moscow as a speaker at the recent lubricants conference, I was struck by the change from my first visit four years ago. At that point, the car parc had high proportion of old locally produced Ladas and the population did not seem affluent, even though there were plenty of top-end Mercedes on the roads.
Now, the market - at least in a-typical Moscow - has changed. People are using smart phones and tablets in the metro. Nineteen out of 20 cars parked in the street are foreign brands and mostly new. Many are big, high price, high prestige vehicles. No doubt in the provinces the situation is different, but as the indicator of change, it is quite clear. The foreign car brands are driving the lubricants market, while Russia's demand for diesel and gasoline continues to grow.
The result? High quality oils are being used in the automotive sector.
The engine specification requirements drive the demand for the better lubricants. As the engine standards are global and subject to increasingly rigorous emission standards, the API and ACEA specs are sweeping all before them, bringing demand for Group II and Group III base oils with them. GOST is a redundant standard which might be updated by copying API & ACEA.
But, the lack local testing is a real problem, as is the absence of monitoring of finished products and not just in Russia. Even with a drive to improve refining processes, the net result is that “Western” lubes brands have already taken 30% of the Russian car market and, according to one speaker at the conference, will reach 50% of the Automotive sector.
Another issue, according to one Russian commentator, is that “Russian consumers do not trust Russian brands”. This represents a significant challenge for the market leader, Lukoil, and the other large indigenous producers who need to compete with the Western Lube brands
Unfortunately, the local base oil production is 99% Group I which, of course, is not sufficient to produce the modern ACEA/API oils . While there is, and will continue to be, stable consumption from the railways and the military for these lower quality oils, the price is likely to continue to decline, further undermining the sustainability of the local producers.
So, investment in technology is essential and, encouragingly, is happening. But it is not going to be enough. Brand-building is going to be a key success factor. Consumers want proof of quality and that means investment in ACEA/API approval procedures. Partnering with well-connected additive producers sounds like the way forward - something Gazprom is already taking to heart, albeit most recently in the Marine sector. Otherwise the foreign lubes makers will mop up the most profitable part of the lubricants market.
With Russia being one of the few growing car markets in the world, all the big foreign brands will want part of the action. So, even for a foreign brand, it will be a competitive market. Producing and marketing the right oil is the key challenge.
Of course this is one area where OATS can help. Websites, supported by social media, can help build brand at a lower cost than other means. Analysis of the car parc, combined with a review of the demand for particular specifications can isolate the opportunities. If you would like to know more about OATS’ new Product Line Review service, or have any views on this or other content in this month’s OATS Bulletin, contact us.
Sebastian Crawshaw
Chairman, OATS