Kline Study Predicts Shift from Monograde to Multigrade PCMOs in Egypt

LITTLE FALLS, N.J., Oct. 25, 2005 -- Consumption of multigrade passenger car motor oils in Egypt is expected to increase significantly in the next decade, according to a study soon to be released by Kline & Company. Multigrade lubricants, currently 77% of the Egyptian PCMO market, are expected to account for more than 90% by 2014, according to Kline's COMPETITIVE INTELLIGENCE FOR THE GLOBAL LUBRICANTS INDUSTRY, 2004-2014.

Trailing only South Africa, Egypt is the second-largest lubricants consumer in Africa, but its growth potential in the lubricants market is higher than any other African nation for the next decade, according to Kline's forecasts. Within the motor oils segment in Egypt, multigrade oils are expected to increase their market share at an average annual rate of 1.6%, and PCMOs are expected to show an overall compound aggregate growth rate of more than 3.5% from 2004 to 2014.

The reasons for this shift are centered on the growth of the new car population in Egypt.

"After a dip five years ago, the Egyptian economy has recovered and is growing at a healthy rate," says Geeta Agashe, director of the Petroleum & Energy practice for Kline's research division. "The automobile population is increasing as more Egyptians are able to purchase cars. Disposable income continues to rise, and consumers are replacing older cars with new models that come with manufacturer recommendations for using multigrade oils."

A decline in monogrades is also expected to accelerate in the long term, as more old vehicles are scrapped and the second-hand car market expands to include later models of domestic and imported cars.

There is also a cultural component to the shift to multigrades. Egyptian car owners are more likely to use service centers for oil changes, as opposed to doing it themselves, Kline's research shows. And although monogrades are cheaper, service centers generally use the OEM-recommended grades for oil changes. Oil changes are also performed more frequently in Egypt due to the sandy environment and potential for very high temperatures. Oil change recommendations are based on time, rather than distance, intervals.

Because the penetration of multigrade engine oils is directly linked to the increase in new passenger cars into the auto population, basestock producers will see a declining market for the Group I basestocks they use to produce monograde lubricants as the market for Group II/III basestocks grows. Companies will also have to look at different additive components and additive packages.

"Majors like ExxonMobil and Shell are already marketing sophisticated oils in other parts of the world, so this is not a big hurdle for them," says George Morvey, engagement manager in Kline's Petroleum & Energy consulting practice. "This will be more of an adjustment for the domestic oil companies in Egypt like Coop and Misr."

"Currently there's no Group II or III refining capacity in Egypt, so all of the basestocks will have to be imported. This is a good thing for North American producers, who expect to see a surplus of Group II basestocks in the next few years," says Agashe.

"However, some investment could arise in the Middle East for expansion of Group II and III production," Agashe adds, pointing to the recently announced joint venture between Bapco and Neste to build a Group III base oil plant in Bahrain.

COMPETITIVE INTELLIGENCE FOR THE GLOBAL LUBRICANTS INDUSTRY, 2004-2014, Kline's third edition of this study, is a comprehensive analysis designed to help strategic planners, marketers, and raw materials suppliers assess the markets for their lubricant products and understand their competitors on a regional and global basis. It examines 30 major and developing lubricant-consuming countries and suppliers.

For more information on this study, go to http://www.klinegroup.com/y533.htm or contact Geeta Agashe at +1-973-435-3484 or geeta_agashe@klinegroup.com. Those based in Europe should contact Pilar Pardo at +32 2 776 0737 or pilar.pardo@kline-europe.com.

For information on the customized consulting capabilities of Kline's Petroleum & Energy practice, contact George Morvey at +1-973-435-3378 or george_morvey@klinegroup.com.

Established in 1959, Kline & Company, Inc. (http://www.klinegroup.com/) is an international management consulting and market research firm that offers a broad range of services to the petroleum and energy, chemicals and materials, consumer products, and life sciences industries.