Industry Profie: Lubricant Oil Industry in Indonesia

MARKET INTELLIGENCE REPORT ON

CUT THROAT COMPETITION FEARED IN LUBRICANT OIL MARKET

July 2009

A sharper market competition is feared to beset the country’s lubricant oil industry this year with shrinking demand as a result of slump that still hits the automotive market.

The market demand for lubricant oil is forecast to plunge 30% in 2009 compared to last year. The culprit is falling production of motorcycles to around 4.5 million and car to around 350,000 units this year. The production fall is a result of weak purchasing power of the consumers in general. The decline in the demand for lube oil especially oil for motorcycles is also attributable to longer time after replacement is made. Demand for lubricant oil for cars is not affected as generally replacement is more regular for cars.

The automotive sector accounts for around 60% of lubricant oil consumption in the country with 40% for industrial sector. Demand for lubricant oil in 2008 reached 650 million liters. The demand is forecast to shrink 195 million liters this year to 455 million liters with the slump in he automotive market.

No standard required for lube oil

The competition in the market of lubricant oil is sharp with many imported products entering the domestic market. There are about 250 brands of lubricant oil on the domestic market.

New brands enter the market easily as there has been no standard that has to be met by the products. Each product uses a standard it wants.

The process of standardization is hampered with notification from the National Standard Agency to the World Trade Organization (WTO) yet to be revised by the energy and mineral resources ministry. The ministry will launch at least 10 types of lubricant oil that will be required to meet the Indonesian National Standard (SNI).

Among the standards used by lubricant oil products circulating in Indonesia include API (American Petroleum Institute), JASO (Japanese Automotive Standard Organization) and ACEA (European Automobile Manufacturers Association).

Producers of lube oil base in Indonesia

Pertamina produces the basic material for lubricant oil or lube base oil (LBO) from its oil refinery in Cilacap. The refinery of its Operation Unit IV in Cilacap produces Lube Base Oil with Group I and II of the HVI- 60, HVI - 95, HVI -160 S, HVI - 160 B and HVI – 650 types.

Lube Base Oil is produced by the Lube Oil Complex I & II. The product is them mixed with additive to turn out lubricant oil such as "Mesran", etc After the capacity expansion through de-bottlenecking (1998/1999), a Lube Oil Complex III (LOC III) was built further expanding the capacity from 225,000 tons/year to 428,000 tons/year.

The production rate for Lube base oil after de-bottlenecking is as follows:

1. HVI-60 = 69,400 tons/year

2. HVI-95 = 108,500 tons/year

3. HVI-160s = 104,600 tons/year

4. HVI-650 = 145,500 tons/year

The Lube Base Oil is channeled to the Lube Oil Blending Plant (LOBP) in the Lubricant oil Production Unit of PERTAMINA in Jakarta, Surabaya and Cilacap to be processed further into lubricant oils, and the excess production of Lube Base Oil is sold on the domestic and international market.

In addition, Pertamina in cooperation with SK Energy has built a factory to produce basic material for synthetic lubricant oil (lube based oil group 3) in the refinery of Pertamina’s UP II in Dumai. The cooperation made Pertamina the second producer of synthetic lubricant oil in Asia after Korea. The types of Lube Base Oil produced in the refinery, 100-N and 150-N. LBO would be Pertamina’s highly competitive lubricant oil products in international market.

The project of LBO Group III in Dumai was completed in March 2008 or two months ahead of schedule. Pertamina began producing synthetic lubricant oil since the middle of last year with a capacity of 75,000 kiloliters per year. Its production is partly exported by SK Energy and the rest sold on the domestic market by Pertamina.

Lube oil blending plant

Apart from Pertamina, Indonesia has a number of other producers of lubricant oil. They include PT Wiraswasta Gemilang Indonesia (WGI), PT Agip Lubrindo Pratama, and PT Castrol Indonesia.

Pertamina as the largest producer of lubricant oil in the country expand its blending capacity in November 2008 with the completion of a new lubricant oil plant in Gresik, East Java. Pertamina already has lubricant oil blending plants in Jakarta with a production capacity of 300,000 kiloliters, in Surabaya with a capacity of 130,000 kiloliters and in Cilacap with a capacity of 120,000 kiloliters per year.

PT Pertamina completed the construction of Lube Oil Blending Plant (LOBP) in the Gresik Lubricant oil Production Unit on 1 November 2008. Construction of the plant began 26 April 2007 with an investment of Rp220 billion. The production capacity of the Gresik lubricant oil plant is 65,000 kiloliters per shift per year. The factory could operate in two shifts that its production capacity could reach 130,000 kiloliters. The piling capacity of its raw material in the form of base oil and additives is 14,000 kiloliters and the production capacity for its end product is 1,800 kiloliters.

LOBP in Gresik uses two technologies in line blending and automatic batch blending. The capacity of automatic product filling facility, four line lithos plastic bottles is 165,600 boxes per shift per month or 3,382 kiloliters per shift per month. The filling capacity for four line 209 liter drum is 24,600 drums per shift per month or 5,150 kiloliters per shift per month.

PT Wiraswasta Gemilang has a plant in Bekasi with a capacity of 120,000 kiloliters per year. In 2006, its production capacity was only 75,000 kiloliters. Lubricant oil produced by the company is known with the brand of Evalube, Pennzoil, lubricant oil for industries and marine.

PT. Agip Lubrindo Pratama is a company producing lubricant oil starting operation in 1997. The company is one of the producers that recycles used lubricant oil with a processing capacity 40,000 MT/year. PT Wiraswasta Gemilang also uses used lubricant oil as its basic material to produce lubricant oil. See ICN's List of Contents >>