The lubricants sector has long been considered mature, even staid, but there is growing evidence that major market turmoil is ahead.
While lubricants rarely grabs the headlines in the same way as, say, exploration and production, lubes companies have been hit in the same way as E&P firms by the industry`s hard times.
Manfred Fuchs, chairman of Fuchs Petrolub AG, Mannheim, Germany, said that the mergers and acquisitions (M&A) fever that swept through the industry as a whole threatens to change the lubricants scene radically.
Fuchs is the world`s second largest independent lubricants manufacturer after Burmah Castrol plc, Swindon, U.K., and the 14th largest manufacturer overall.
But the lubes sector is fragmented, with 1,700 manufacturers worldwide, including 300 in Western Europe. Yet 2% of the manufacturers control more than 70% of the global market.
The formation of Exxon Mobil Corp. will rock the lubricants sector, with secondary waves of smaller M&As expected to follow.
Before the Exxon-Mobil deal, Exxon was global market leader in base lubes, while Royal Dutch/Shell led the finished lubricants market. But the Exxon-Mobil combine will lead both.
"If the Exxon-Mobil merger takes place as anticipated," said Fuchs, "then 30% of the global lubricants market will have changed hands through recent mergers and acquisitions.
"We`ve not seen the end of this trend yet. As companies move to bigger and bigger units, there will be an unavoidable loss of niche capabilities and a resultant loss of flexibility towards customers.
"Mergers and acquisitions are two-sided coins. While they bring synergies, there is a price to pay. This presents opportunities to companies like ourselves."
Fuchs reckons his company will survive the coming market turbulence because of its size, global position, and degree of specialization.
Overall lubricants demand is expected to grow only 2.8%/year worldwide by 2010 from last year`s 37.8 million metric tons. This low rate is due mainly to falling automotive demand, yet the outlook for industrial and "unconventional" lubricants is healthy.
Fuchs claims to be the global market leader in industrial lubricants and special lubricants. It boasts 3.4 times the market average for specialty lubes production; also, 62% of its sales are in high-margin industrial lubes, while 60% of the overall market`s income is from automotive lubes.
"This high degree of specialization protects us against the anticipated market pressures," said Fuchs, "while being among the top 1% gives us critical mass.
"We are global, and our suppliers and customers are increasingly global. We have made a number of acquisitions over the last 20 years, for example, as chemical companies have divested their lubes businesses. We are confident we can manage in the future without further alliances."