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AEC set to boost lubricant demand

With the ASEAN Economic Community (AEC) coming into play, established lubricant suppliers expect a boost in the automotive sector. How will the AEC bloc impact the lubricant industry? Japnit Singh, Senior Director of Spire Research and Consulting, shared his insights on key trends in Lube Report Asia’s magazine.

With the establishment of AEC due this year – it signifies a major step towards a free-trade zone. This 10-nation bloc will ensure free movement of goods and services, investment, flow of capital and skilled labor.

At the same time, Singh remarked that slashes in high duties (up to 30-40 %) on automotive sector will result in increased demand for lubricant oil – forecasted to reach 3.5 billion liters by 2016.

As a result, it is expected to lead to greater demand for Japanese automobiles that are assembled in Malaysia, Indonesia and Thailand. Furthermore, such developments could make ASEAN the world’s fifth-largest auto market as demand for automobiles continue to soar at an expected 8% annually.

On the other hand, major markets such as Thailand, Indonesia and Vietnam still impose import duties on lubricants. Singh opined that once the AEC is established – it aims to eliminate tariffs on lubricants and automobiles. However, new entrants possibly face stiff competition from domestic petrochemical companies due to their strong foothold over retail channels.

Needless to say, the free-trade zone could bring about changes to supply side of the lubricant sector as well. Mergers and acquisitions are likely due to regional integration providing labor, tax as well as market advantage. Furthermore, companies might emphasize both supply chain and marketing due to expected increase in demand and low production cost. Supply chains would become more effective as the production facility and exporting country can be placed within the same country.

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