Amid rising petroleum sales, an evident trend has been the increase in retail fuel segment by the oil marketing companies (OMCs). The downstream sector is brimming with competition in that segment, and this raises prospects for the lubricant segment, which is a much-related sector.
The investment plans of the OMCs are also likely to push up the demand for lubricants in the country as these companies have been venturing into expanding their retail fuels segment by not only upgrading the petrol and diesel qualities (though these have come into question lately – Read “The Honda-OMCs face off”, published on Nov 16, 2017), but also increasing the retail network and pumps with auxiliary value-added services like carwash, oil check, etc. And lubes provide them with another way to manoeuvre the sector. .
While the local production of lubricant oils has remained more or less constant, the growth in the automobile sector both via import and local manufacturing is also likely to increase the demand for the lubricants. The deregulation in the downstream sector and the increased sales of tractors, trucks and passenger cars amid the ongoing work on CPEC and infrastructure projects is working in favour of petroleum consumption.
Those factors are likely to boost the demand for lubricant oils. The illustration shows how the demand for lubes from the transport sector has jumped significantly in FY16. And this growth in the automobile sector is not dying down anytime soon as new and existing players are all buoyed for new investments.
The lubes market is highly fragmented. However, the OMC with the largest share is Shell Pakistan, which controls around 35 percent of the market, followed by PSO. Hi-Tech Lubricants is another player. Also watch out for Hascol Petroleum, which has been very successful in making inroads into the segment with car and auto oil.
Hascol also has a strategic license agreement with FUCHS Middle East (FOMEL), an associate of FUCHS Petrolub based in Germany. Under the agreement, Hascol is setting up a lube oil blending plant worth $20 million, which is likely to come online sometime in the ongoing fiscal year.
Will this non-energy segment become a major revenue earner for the OMCs versus the key energy products like furnace oil, diesel and petrol? Chances are that it won’t as the rising competition will keep a lid on the margins.
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