4 Base Oils Supplement | February 2010 | www.icis.

com
BASE OILS 2010 OVERVIEW
THE RECESSION of 2009 had many casual-
ties. One that will likely not be lamented is
bination of large, fast-growing economies
was a great buzz-word, but never made
any sense.
Russia, India and China could not
Clubbing them together clouds ones
thinking on these economies and is in
fact dangerous, if taken seriously.
enced the global recession to varying
the lubricant and lubricant base stock mar-
kets in these countries has also been varied.
EFFECT OF THE DOWNTURN
countries has varied in both magnitude and
China and India barely slowed down. Brazil,
like Russia, went into a recession, but the
contraction was much milder in comparison
with the latter.
Even with these data it would be wrong to
Global recession afected the economies of the
BRIC countries diferently. To take a somewhat
contrarian viewpoint, perhaps the idea of
the BRIC bloc should now be laid to rest
MILIND PHADKE/KLINE & COMPANY
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www.icis.com | February 2010 | Base Oils Supplement 5
assume that India is like China, or that Brazil
is a milder version of Russia.
Russia is an export-oriented economy. Its
health and growth depend on exports of oil,
metals and other commodities. Prior to the
recession, the Russian economy had over-
heated as a result of high oil prices.
private companies chalked up nearly $500bn
(355bn) in external debt a phenomenon
supported by the easy monetary conditions
in North America and Europe. With crude
oil prices coming down and foreign credit
drying up, the economy collapsed.
Over the past few decades, Brazil has
developed from being an agricultural
economy to an industrial one. However,
agriculture and natural resource exports are
still an important driver for growth. Brazil
escaped the worst impact of the recession on
account of two factors.
First, the banking sector in Brazil is largely
government controlled and as a result more
conservative. It had limited exposure to the
US sub-prime loan market. Second, China
has replaced the US as Brazils largest export
on the back of the Chinese upturn. As indi-
cated in , industrial produc-
tion in Brazil tracks Chinese exports with a
three month lag.
India is a Goldilocks economy neither
too dependent on export-driven growth (as
are China and the East Asian tigers), nor too
reliant on foreign money for investment-
driven growth (such as Russia and a few
other countries in Eastern Europe). As a
result, the impact of the recession on India
has been neither severe nor sustained. In the
the Indian stock market, leading to a drop in
dence has returned and along with it foreign
creating excessive liquidity, leading to fears
that a housing bubble might be created.
supported by an undervalued currency.
With its chief export markets contracting,
stimulus. However, it is at crossroads. With
Western consumers cutting spending, at
least in the immediate future, the country
Investment-led growth is unlikely to be
excess capacity, resulting in a poor return on
capital. Growth in the long term will have to
come from increasing domestic consump-
ment is following a loose monetary policy to
stimulate growth, but the fear is that this will
lead to a new housing bubble in China.
DEMAND DROPPING
Lubricant consumption in BRIC countries
dropped by between 12% and 18% as a result
of the recession. Consumption is projected
to recover to 2008 levels by around 2011, as
cantly from a 2530% drop in Russia to a
1015% drop in China and India.
Russia was one of the countries most
in the country has been driven by energy
exports as well as investment growth, in
turn fueled by foreign money. As a result,
the country was doubly hit by the recession.
Industrial production, construction, min-
ing, and automotive production were all
tion of industrial and commercial lubricants
2009. Consumption of consumer lubricants
use a result of high unemployment and the
prevailing economic pessimism.
Suppliers of imported lubricants fared
worse than domestic suppliers, as they have
much of their costs in foreign currency and,
with the depreciation of the rouble, their abil-
ity to compete was reduced.
imported lubricants is supplied through
workshops and dealers of imported cars.
distress as they have large inventories of
their ability to obtain and sell lubricants.
among the BRIC countries to recover as a
and the overall business pessimism.
industrial production and exports were
down by 13% and 23% respectively com-
the country is pulling itself out of recession
on the back of exports to China. As the
most recent available data show, industrial
production picked up in the second half of
2009 growing at nearly 6% over the second
half of 2008.
As a result, consumption of industrial and
commercial lubricants was down by 1520%
close to prerecession levels by the end of the
(which declined by around 8%) was much
milder because of a government subsidy
on car sales, as well as the fact that ethanol
prices did not rise as much as gasoline.
Hence, there was no major impact of high
fuel prices on car driving.
India experienced a mere slowing down
in growth rates because of the recession. Of
course, there was a period of panic when
exposure to it was not clear. However,

SOURCE: IMF, THE ECONOMIST
GDP GROWTH IN BRIC COUNTRIES
* * 9 0 0 2 3 Q 9 0 0 2 8 0 0 2 2009 Q2 2009 Q1
% change*
-15
-10
-5
0
5
10
15
India Russia
China Brazil
NOTE: *Change over same period previous year
**Estimates for full year

SOURCE: KLINE & COMPANY
LUBRICANT CONSUMPTION BRIC COUNTRIES
m tonnes
7
8
9
10
11
2011 2010 2009 2008
Pessimistic
Optimistic
Most likely

Brazil has developed from

being an agricultural
economy to an industrial one
ECS_220210_004-006 5 5/2/10 15:28:25
6 Base Oils Supplement | February 2010 | www.icis.com
BASE OILS 2010 OVERVIEW
this was short-lived. Growth in industrial
production was never negative, even at the
height of the recession. In the short term,
the automotive and construction industries
Milind Phadke is an industry
manager at Kline & Companys
energy practice. He is based
in Klines India offce and is
responsible for the companys
syndicated market research
reports in the areas of fnished
lubricants, lubricant basestocks and lubricant
additives. Milind has over 14 years industry
experience in petrochemicals, polymers and
downstream petroleum products. He holds a
degree in Instrumentation Engineering from Indias
Marathwada University and an MBA from the
Indian Institute of Management in Ahmedabad.
Read Klines latest study on lubricants in the BRIC
economies www.klinegroup.com .
result of the contraction in its export mar-
one point, the impact was more severe than
in India. With the help of a $600bn (425bn)
stimulus package, the country has clawed
its way out of recession. However, lubricant
consumption for 2009 will be 12% lower
compared with 2008 with the industrial
and commercial lubricant markets experi-
encing the worst declines, followed closely
facing the country is to replace exports with
domestic consumption to drive growth.
BEYOND COMPARISON
It is clear that the BRIC countries are all very
them as a bloc does not make sense. Russia
is the weakest growth prospect and the
country really does not belong to any high
has been driven mainly by energy exports.
Its recovery is linked to the recovery in
Europe, as well as other non-economic fac-
all BRIC countries.
Both Brazil and India escaped the worst
impact of the recession, not because of any
sector in these economies is partially closed.
India has managed to get back on the growth
track by virtue of strong domestic demand.
Brazil, on the other hand is trying to export
its way to growth, focusing this time on
China and India, rather than the US.
Chinas growth needs a new sponsor, now
that Western consumers will take a long
time to recover consumption levels. Growth
in domestic consumption can be the new
driver for the Chinese economy. It remains
to be seen if Chinese consumers are up to
the challenge.
BASE OILS 2010 OVERVIEW
largely untouched. As a result, lubricant
consumption in the industrial and com-
of 2009, but it is already back on the prere-
cession growth trajectory.
Finally, China experienced a rather severe
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