Analysis: The global metalworking fluids market
Milind Phadke | TLT Market Trends March 2014
Modest consumption increases are forecasted, accompanied by shifts in production sources.
KEY CONCEPTS
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Demand for metalworking fluids in 2012 is estimated at 2.2 million tons, about the same as 2007.
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Kline & Co. projects moderate growth in the metalworking fluids industry, with 2022 consumption reaching about 2.4 million tons.
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The trend to outsource manufacturing to low-cost Asian nations is winding down and might reverse.
THE GLOBAL DEMAND FOR METALWORKING FLUIDS in 2012 is estimated at 2.2 million tons. This represents an essentially flat market in comparison to 2007 when demand was estimated at 2.3 million tons.
PRODUCTS
Removal fluids (or coolants) account for almost half of the total metalworking fluid consumption. Forming fluids (which include rolling oils, drawing and stamping fluids) and forging fluids account for 30 percent of the total demand. Protecting fluids account for 12 percent, and treating fluids account for 9 percent.
Besides a functional classification, products also are categorized on the basis of their composition into straight (or neat) oils and water-miscible fluids. Water-miscible fluids can be further classified as soluble oils, semisynthetic fluids and synthetic fluids. Consumption of removal fluids is generally dominated by water-miscible fluids due to their low usage cost, though straight oils dominate consumption in some markets. In contrast, for both protecting and treating fluids, consumption is dominated by straight oils, though there is a shift toward using water-miscible fluids.
THE GLOBAL MARKETPLACE
Asia is the largest market with about 42 percent of the total demand, followed by North America with 28 percent. Europe, which includes Western Europe, Central and Eastern Europe, Russia and Turkey, accounts for 26 percent of the total. Rest of World (RoW)—which includes South America, Africa and the Middle East—accounts for about 4 percent of total demand.
The top markets in Europe include Russia, Germany, France, Italy and the United Kingdom. These top five markets account for about 72 percent of the demand in the region. Russia is one of the leading steel and aluminium producers in the world and has a substantial automotive industry. Germany is the leading auto manufacturer in Europe and has a sizable share of the European metals production. Russia, Spain and France are other leading auto manufacturers in Europe. The United Kingdom is the fifth largest auto manufacturer in Europe and has a vibrant aerospace and shipbuilding industry. The presence of these industries drives metalworking fluid consumption in these markets.
The key markets in Asia include China, Japan, India, South Korea, Thailand and Taiwan. Together these markets account for about 95 percent of total Asian demand. All of these countries have extensive manufacturing industries covering automotive manufacturing, steel and aluminium rolling mills, forging operations and machinery manufacturing, all of which contribute to metalworking fluids consumption. In North America, nearly 85 percent of the metalworking consumption is accounted for by the United States, with Canada and Mexico accounting for the balance. Brazil and South Africa are the largest markets in RoW.
Figure 1. Global Metalworking Fluid Consumption by Product and Region, 2012.
ADDITIVE DEMAND
The global additive consumption for metalworking fluids accounts for about 575 kilotonnes. The leading additive categories include corrosion inhibitors, emulsifiers, friction modifiers and EP. Together these four additive categories account for more than 80 percent of the metalworking fluid additive demand. Corrosion inhibitors minimize corrosion and rust, so they are most commonly used in protecting fluids but also are found in other fluids. Emulsifiers are needed for formulating water-miscible fluids.
Additive changes are driven primarily by health, safety and environmental (HSE) considerations. The use of low-molecular weight chlorinated paraffin is restricted or outright banned. These have been replaced by mid-chain and long-chain molecules. However, they are not as effective in offering EP protection, hence their loading is higher. Phosphor and sulphur compounds also are being used as substitutes, but they too bring in their own problems of promoting bioactivity and unpleasant odors.
Besides chlorinated paraffins, the use of metals in general is being restricted. There is also a reduction in use of secondary amines and formaldehyde releasing biocides. These HSE factors have all been in play for some 10 to 15 years. They are not new. The displacement of undesirable molecules at a global level is rather slow.
The product development practices in Europe in particular are mainly focused on developing new technology out of necessity, due to REACH (Registration, Evaluation, Authorization, and Restriction of Chemicals) and other regulations. Most of the new product launches in Europe recently are based on the following technologies:
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Boron- and chlorine-free technology
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Amine-free technology
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Boron/amine-free technology
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Cyclic amine technology
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Hazard label-free technology
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Emulsification of Group II and III and GTL base oil
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Fluids with a lower potential to stain
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Vegetable ester-based materials.
All European companies must follow the REACH legislation of the EU, which is applied not to metalworking fluids but to the ingredients used in their production. These ingredients have to be registered in Europe. REACH is more problematic with water- miscible fluids than with neat oil due to the higher number of ingredients in their formulations. REACH also affects metalworking fluid consumers as they have to provide detailed documentation on metalworking fluid-related issues such as types of fluids used, ways of usage, processes where metalworking fluids are used and waste disposal. Other regulations which affect metalworking fluid suppliers and are followed in all EU countries include the biocide directive and Adaptations to Technical Progress (ATPs).
Due to these regulations, the desire for green products, mostly chlorine, boron and formaldehyde-released-agents- free formulations, is increasing in Europe.
SUPPLIERS
The supplier base for metalworking fluids in North America, Europe and Asia is extremely fragmented. Very few companies have more than 10 percent of the overall market in any region. Additionally, the top 10 suppliers account for just about 45-65 percent of the market. Of course, the picture is quite different at a country level where a few suppliers may dominate the market.
This supply structure is to be expected given that the metalworking fluids industry has a very wide range of products that reflect the variety in machining conditions, the material involved, the operating conditions, the performance requirements from the metalworking fluid and other such factors. Because there are no standardized products, there is no significant economy of scale, leading to a fragmented supply base.
Metalworking fluid suppliers fall primarily into three categories: specialty chemical companies, oil companies and distribution companies. Specialty chemical companies have extensive product lines, strong technical capabilities and also offer application- oriented services. These companies are also leading suppliers of chemical management programs. With a few exceptions, they have greater focus on direct sales.
The second category of suppliers is oil companies. These companies are generally commodity oriented and offer a small set of standardized products like straight mineral oils and watersoluble oils that require minimal service support. Their sales are largely through distributors.
The third category is distributors. They have a local presence, a wide range of products other than metalworking fluids and maintain strong ties with end-users. A few of the larger companies offer chemical management programs in collaboration with specialty companies.
Besides the majors, many of the second-tier companies have a presence in different markets, which allows them to follow their customers to a new geography.
HISTORICAL PERSPECTIVE
The global recession has caused considerable upheaval in the metalworking fluids market. Though the 2012 consumption is practically at the 2007 and 2008 consumption level, the market has gone through considerable upswings and downswings, as shown in Figure 2.
Figure 2. Growth in Metalworking Fluid Consumption and Production Levels in Key End-use Industries, 2004 to 2012.
Global metalworking fluid consumption showed a gradual increase between 2004 and 2008. After declining by more than 12 percent in 2009 due to the global recession, consumption has grown in fits and starts and was back to 2004 consumption levels in 2012. What is interesting though is the fact that, during the same period, production levels in key end-use industries have increased by a factor of 1.3 to 1.6.
What explains this situation? Improved housekeeping and on-site rerefining have helped extend fluid change intervals and hold down metalworking fluid consumption, even as production levels continued to increase. Growth in the share of water-miscible fluids and the increase in dilution rates also have helped. Changes in manufacturing technology such as minimum quantity lubrication and near net shape manufacturing have helped dampen metalworking fluid consumption.
OUTLOOK
Based on the ongoing survey of end-users and suppliers, Kline projects moderate growth in the metalworking fluid industry, with consumption reaching about 2.4 million tons by 2022. On the surface, the industry appears to be staid, but a number of interesting trends are in play.
Changes in base fluids. Due to availability issues, use of API Group I is declining, and the use of hydrocracked basestocks is increasing. This change has advantages and disadvantages. Group I fluids have higher solubility. On the other hand, hydrocracked basestocks have a higher viscosity index and lower misting. Besides Group II/III basestocks, vegetable oils are trying to penetrate formulations. These oils have lower oxidation stability and are susceptible to frosting, as well as lower misting and better lubricity.
Growth in straight oils. Water-miscible fluids are preferred due to their lower usage cost. Increasing dilution rates offers opportunities to reduce costs. However, there are significant drawbacks. Neat oils are easier to maintain, have a longer tank life and are easier to recycle. In the case of water- miscible fluids, if the cost of effluent testing and treatment is factored in, these fluids can be expensive to use. Additionally, countries such as China and India are experiencing a severe water shortage.
Of the three water-consuming sectors, reducing consumption levels in the household and agriculture sectors by means of higher tariffs is difficult to achieve politically. As a result, industrial users have to bear the brunt of reducing water availability. In many instances, project approvals are tied to the level of water load for the project. Water recycling and usage of straight oils is thus becoming important. Any shift in product preference will be seen mainly for new projects because the cost of the retrofit equipment for using neat oils can be quite high. The recession has made manufacturers conservative, and they do not wish to undertake any projects unless absolutely necessary.
Manufacturing trends. Asia, and in particular China, have benefited from outsourcing the manufacturing from high cost markets in North America and Europe to low-cost destinations. The outsourcing trend is winding down and may reverse altogether.
The recession has created a change in mind sets of rich-world governments. There is an increased desire to protect the manufacturing sector to retain valuable skills and to create jobs. For their part, manufacturers are increasingly concluding that when higher logistics costs, shipping lags and complexity and the threat of intellectual property theft are factored in, it does not make sense to outsource their production. Low-cost Asian countries are increasingly not low-cost due to rising labor costs, lower productivity and, in the case of China, an appreciating currency.
The reversal of outsourced manufacturing will have two effects. First, manufacturing activity in rich countries will stabilize or grow with the corresponding impact on metalworking fluid consumption. Second, lowcost Asian manufacturers will seek to move up the value chain and look to globalize their operations in order to continue growing. This will compel them to modernize their manufacturing processes and pay greater attention to HSE factors. This, in turn, will create an opportunity for higher quality metalworking fluid products, even in low quality markets.
Milind Phadke is a director at Kline & Co. in the Energy practice. Based in Kline’s India office, he is responsible for the company’s syndicated market research reports in the areas of finished lubricants, lubricant basestocks and lubricant additives. You can reach him at milind.phadke@klinegroup.com.
Kline is an international provider of world-class consulting services and high-quality market intelligence for industries including lubricants and chemicals. Learn more at www.klinegroup.com.