FocusUS grease makers see opportunities, challenges in Brazil

15 August 2013 20:59  [Source: ICIS news]

US grease makers see opportunities and challenges in BrazilBy Judith Taylor

HOUSTON (ICIS)--US grease makers see a combination of opportunities and challenges in trying to bring product into the Brazilian market.

According to one US-based grease seller, opportunities in Brazil took about a five-to-eight year timeframe to coalesce into the emerging options that are surfacing in the 2013 marketplace.

The opportunities are lodged mainly in the economic growth the country experienced during this approximate five-to-eight year period.

Sources pointed to Brazil being the world’s seventh largest economy by nominal GDP as of 2012 and also the seventh largest in purchasing power parity. Viewed as a middle power in international affairs, the country has been identified as an emerging power.

The economic changes and recognitions have fostered opportunity, and that has drawn US grease makers, lubricant producers and base oil suppliers toward closer engagement with the South American country.

But the challenges are significant.

“The business mode in Brazil is face to face,” one grease supplier said.

To the potential supplier, this typically means dedicating time and resources for South America mainly to Brazil.

“If you look at it, Rio de Janeiro is for oil and gas, and Sao Paulo is the industrial hub,” a source said.

“But the OEMs [original equipment manufacturers] are in the south because this gives access to Mercosur players,” the source added.

OEMs are key buyers for greases and finished lubricants used in motor vehicles of all kinds and numerous other end-use sectors ranging from marine greases to elevator lubricants.

Mercosur is a free-trade group whose full members are Brazil, Argentina, Paraguay, Uruguay and Venezuela.

While OEMs are keen to be in the south in order to access the free-trade market options, US grease suppliers trying to operate in Brazil must deal with the logistics of getting material to those OEMs. The logistics of doing that can be costly, sometimes outweighing the attraction of gaining traction in the Brazilian market.

There are several qualifiers in looking at the logistics.

US grease market sources said originally the differences between the US and Brazilian markets were pricing and raw material availability, if needed. For example, some vegetable stocks such as canola versus soybean might work better in the US than in Brazil, or vice versa.

But customers often prefer original formulations, making substitutions of one oil or one additive for a different one either not advisable or not doable.

If the grease is produced in the US, keeping formulations consistent and minimising oil choices, then the supplier must deal with the overall cost of logistics to move the finished goods to Brazilian OEMs.

“Logistics from North America to Brazil and any other place in South America are completely puzzling,” a grease supplier said.

According to sources, the mark-up can be anywhere from 30-80%, including the taxation and cost of logistics in moving the material.

“You cannot do everything from Rio,” a source said. “And Sao Paulo is a megapolis – a hub, but not the final destination."

In order to meet Brazil’s face-to-face business model, finished grease products need to be taken to the OEMs in the south or out to other regions of this huge country, which is similar in geographic size to the US.

“It is almost like the east-of-the Rockies, west-of-the Rockies situation in the US,” a supplier said.

Since greases use base oils, and some other oils, as feedstock, fundamentally being composed of natural or synthetic oils combined with thickening compounds that yield a solid or semi-solid product, looking at the base oil production of the region can be helpful.

In Brazil, Petrobras is the primary base oil producer, with production capacity of paraffinic base stocks at approximately 12,950 bbl/day from two refinery locations and production of 1,290 bbl/day of naphthenic stocks.

US grease sources said there were some indications in the market that Petrobras would build a grease unit in 2015, but no confirmed positions on a project were detected.

So the opportunities for US grease makers to participate in Brazilian business remain attractive from a marketing standpoint.

Tackling the challenges of logistics is the sticking point.

Follow Judith on Twitter

By: Judith Taylor
+1 713 525 2653

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