ILMA Compoundings – December 2019 - 34

IN NETWORK

Cross Connections
The State of Lubricants in Europe
By David Wright

urope as a lubricants market is a mature, low-growth
industry of intensifying competition by established
companies, small and large.
Over the summer, the European Commission (EC)
revised its growth forecast in the euro area to 1.2% in 2019
and 1.4% in 2020, following a slowdown in exports and
softening of consumer demand.
Traditionally the industrial heartland of the region,
Germany this year suffered a decline in growth. Following
two consecutive quarters of gross domestic product (GDP)
growth of 0.2% in the fourth quarter of 2018 and 0.4%
in the first quarter of 2019, according to the country's
Federal Statistical Office, over the period of April to June
2019, growth fell to minus 0.1%. This followed a decline in
the country's exports that came amid concerns of a global
economic slowdown and escalating regional trade wars.
Germany remains the largest European lubricants market,
with an industrial market share in excess of 60% of the total
volume, followed by the U.K. and then France, with a more
equal split of lubricant demand between automotive and
industrial applications.
Typical growth in the overall European lubricants market
is still between 1% and 2% per annum. However, within
this overall figure, there are some significant pockets of
growth representing a market in transition.
Traditionally, Europe has been a market built on Group I
base oil. Today, as much as 60% of the market is still given
over to finished lubricant formulations using Group I as a
base fluid. Rising demand for Group II base oil demanded
by automotive applications since vehicle emission regulations
were first introduced in the 1990s, and more recently industrial applications, has led to imports of around 1.85 million
metric tons of Group II base oil in 2018 into the region from
North America, Asia and, more latterly, the Middle East.
This year, ExxonMobil established a 1 million metric ton
Group II base oils plant in the Netherlands, which will go
toward reducing Europe's dependency on imports as the
region moves to self-sufficiency of supply in both Group II
and eventually Group III base oil. Imports of both groups of
base oils are subject to temporary import duty suspensions,
which recognizes that Europe has not been able historically
to produce enough to meet its own needs.
However, the ability of this new base oils plant in the
Netherlands to serve a rapidly increasing appetite for Group

DECEMBER 2019

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II base oil in the region, which could be growing by as
much as 20% year over year, according to analysts, remains
uncertain and is the subject of much discussion amongst
policy officials in the EC.
For finished lubricant formulations, although the region
is reliant on the imports of base oils for more advanced
applications, it is still a region that blends its own automotive, industrial and metalworking lubricants.
Regulatory alignment across the region on the registration, evaluation and authorization of chemicals in REACH,
the Classification of Labeling and Packaging (CLP), itself
based on the United Nations' Globally Harmonized System,
and the Biocides Product Regulation (BPR) have all led
to leveling of the overall European regional market. These
are regulations that are being replicated in most advanced
economies of the world.
Looking ahead, much of Europe's fortunes as an outward-facing trading region are reliant on the buoyancy
of export markets. The departure of the U.K. from the
European Union (EU), referred to as Brexit, is creating
uncertainty over the future relationship of the country to
the region. Taken as a bloc, the EU is the U.K.'s largest
trading partner. In 2018, the EU accounted for 46% of
U.K. exports and 54% of imports.
Growing trade tensions between the U.S. and the EU,
as well as growing uncertainty surrounding the EU's future
trading relationship with the U.K., have been a cause for
concern at the International Monetary Fund (IMF).
In October, new IMF Chair and Managing Director
Kristalina Georgieva warned that Brexit - in whatever
form - will be painful and add to the effects of a global
slowdown. According to the IMF, growth has already slowed
in almost 90% of the world.
This month's announcement by the World Trade Organization to grant the U.S. permission to impose $7.5 billion in
tariffs on imports from Europe in retaliation for illegal government aid to Airbus has done nothing to allay fears of escalating
trade war between the U.S. and Europe and the U.S. and
China, which could inhibit further global economic growth.
Wright is director general of the United Kingdom
Lubricants Association.

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