Sri Lanka’s overall lubricant market space witnessed a fall in 2019 despite total vehicle population increasing by 4.8% YoY.
This can be attributed to the number of new registrations declining 23.4% YoY on the back of higher levels of import tariffs being enforced coupled with a broader luxury tax on vehicle imports and curtailment on duty-free vehicle permits being issued. Lower disposable incomes and the freeze on vehicle imports by the government will have an adverse effect on the lubricants industry.
“However, we feel that this will start to ease up towards the back end of this year with normalcy resuming and less people working from home, consumer demand will see an uptick. This, coupled with demand remaining stable in the power and a recovery of sorts from the construction segment, will help drive growth for players within the lubricant space,” a Chevron Lubricants Lanka PLC (LLUB) Quarterly Earnings Update – 3Q FY2020 said.
Moreover, the prevalent low oil price climate, the company stands to gain on the back of lower Cost of Goods Sold (COGS). Common practice dictates that companies must ‘make hay whilst the sun shines’.
However, a lower Sri Lankan rupee may offset any benefit(s) that may arise from low oil prices.
Furthermore, most of the materials for production are imported and any exchange rate movement will have a direct impact on the cost of production. Despite a market share gain in 2019, the recent years have shown that LLUB have lost their strong grip as it were. As recently as 2012, LLUB had 65% of the total market. Even though no new licenses were given during 2019, the potential entrance of new foreign and local players will have a direct negative impact on LLUB’s market share.
Moreover, there are currently only 13 players in the market. However, there are a number of other sellers who do operate without obtaining a license.
“Despite this practice being quite commonplace, there still isn’t a proper framework in place to regulate the marketplace.” the report said.
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