India Factory Fill Lube Demand Slows

The demand for factory fill lubricants in India has slowed during the past few months because weak vehicle sales in the world’s fourth-largest automobile market forced automakers to cut their production.

India’s overall domestic sales of automobiles – including passenger vehicles, commercial vehicles, three-wheelers and two-wheelers – declined 16.4 percent year-on-year to 13.9 million units during the April-October 2019 period amid weak demand, according to the latest data from the Society of Indian Automobile Manufacturers. The society represents all major vehicle and vehicular engine manufacturers in India.

Total passenger vehicle sales fell 20.2 percent to 1.6 million units, while total commercial vehicle sales declined 23 percent to 442,253 units during the period. Total sales of two-wheelers, the largest segment of India’s automobile market, slumped nearly 16 percent to 11.5 million units, while total three-wheeler sales slipped 6 percent to 397,681 units.

Industry officials said the subdued vehicle sales have prompted passenger car and commercial vehicle manufacturers – including Maruti Suzuki India Ltd., Mahindra & Mahindra Ltd. and Tata Motors Ltd., as well as India’s leading two-wheeler manufacturer, Hero MotoCorp Ltd. – to cut their production.

Hareesh Nalam, a senior consultant with Kline & Co.’s energy practice, said that during the year almost all original equipment manufacturers and their dealers built up several months of inventory for two-wheelers, passenger cars and commercial vehicles. “Slowdown in vehicle sales in 2019 has eventually led to production cuts across the board in India,” he told Lube Report.

The Society of Indian Automobile Manufacturers said the overall automobile production in the country declined 15.2 percent year-on-year to 16.6 million units during the April-October 2019 period. Total passenger vehicle production fell 16.7 percent to 2 million units, while total commercial vehicle output slumped 30 percent to 468,110 units during the period. Two-wheeler production decreased nearly 15 percent to 13.4 million units and total three-wheeler output declined about 10 percent to 687,275 units.

Because factory fill demand is directly linked to automotive production, the lubricant demand has been impacted in the same proportion that respective OEMs have cut their production, said Shailendra Gokhale, managing partner of Mumbai-based Rosefield DAA International Consultancy LLP. “Aggregate cut in [automotive] production will be an aggregate drop in factory fill sales of lubricants,” he noted, adding that factory fill accounts for about 13 percent to 15 percent of total automotive lubricant volumes.

According to Parsippany, New Jersey-based Kline, factory fill accounted for 8 percent to 10 percent of India’s total lubricant market for commercial vehicles in 2018. The share for two-wheelers was in the same range, while for passenger cars it was slightly higher at 10 percent to 12 percent of the total lubricant demand for consumer vehicles, the consultancy estimated. “These percentages would have come down a bit in 2019,” Nalam said.

India’s 2.5 million metric tons finished lubricants market is dominated by three national oil companies – Bharat Petroleum Corp. Ltd., Hindustan Petroleum Corp. Ltd. and Indian Oil Corp. Ltd. – as well as several private players, including BP’s Castrol India Ltd., Gulf Oil Lubricants India Ltd. and Tide Water Oil Co. (India) Ltd.

In its earnings press release earlier this month, Gulf Oil Lubricants said it had significantly lower revenues in its factory fill volumes for the second quarter that ended Sept. 30, due to major production cuts by the OEMs in which the company has first fill business. It didn’t disclose the volumes.

Kline’s Nalam echoed the sentiment. “A few OEMs have witnessed up to 30 percent to 40 percent decline in consumption of lubricants for factory fill of vehicles in some months of 2019, resulting in a decline in demand for factory fill for lubricants,” he said. Nalam also noted this slowdown would have a delayed impact on service fill demand when these new vehicles are up for servicing in future.

An executive with a Mumbai-based lubricant supplier also affirmed the impact of declining automobile production on the company’s factory fill lube demand. “Yes, it has gone down by about 70 percent,” he told Lube Report on the condition of anonymity, adding that the upcoming implementation of Bharat Stage VI automobile emissions standards in India is also one of the reasons for automakers cutting their production.

Next April the country is scheduled to jump from the existing BS IV automobile emissions standards to BS VI in an attempt to accelerate its fight against local air pollution and global warming. BS VI is equivalent to the European Union’s Euro 6 standard, and automakers need to make changes in engine design to meet the regulatory norms. These vehicles will also require more advanced engine oils.

The executive said there’s slowdown everywhere in India and auto sales may remain subdued for the next six months. Rosefield’s Gokhale agreed, saying that the overall auto sales trend will remain weak for the next few months. “Not because of economic slowdown, but due to migration from BS IV to BS VI by April 1, 2020. OEMs will have to manage this transition well and they can’t afford to be saddled with stocks of BS IV vehicles on April 1,” he explained.

According to India Ratings and Research, the BS VI emission norms are likely to create short-term headwinds for the commercial vehicle segment. The credit rating agency said the implementation of BS VI could add to the sector’s woes, considering the sharp year-on-year fall in the sales volumes of commercial vehicles since May 2019, the underwhelming pace of industrial activity and the higher cost of ownership of a BS-VI commercial vehicle.

Furthermore, pre-buying of BS IV commercial vehicles until the end of March 2020 is unlikely to be meaningful in comparison with earlier occasions when new emission norms had been implemented, given the excess supply situation and muted demand-side fundamentals in the economy, the agency noted.

“Demand for [commercial vehicles] would remain challenged in the near term by the slowing growth of industries and the economy in general as well as by the impact of the extended monsoon on agricultural produce and rural demand,” India Ratings and Research said in a statement.