Mobil Jamuna Lubricant (MJL) Bangladesh Limited, the country's largest lubricant company, witnessed a drop in its sales for the first time in the last three years.
Its sales went down by eight percent to reach Tk500 crore in the first half of the current fiscal year.
The company informed that a slide in automobile sales, closure of some private electricity generation units, and presence of low-quality lubricants in the market are the major reasons for the decline in its sales.
"Besides, the private sector's slowdown and a competitive market have also hurt our business," said Md Rokibul Kabir, company secretary of MJL Bangladesh.
MJL, with a 26 percent market share, is a major player in the country's lube market.
Though the company's sales slipped in the first half of the current fiscal year, its year-on-year sales surged by 26 percent.
Rokibul told The Business Standard that quick rental power plants and automobiles are the two major customers of the company.
"Both the sectors are currently experiencing a slowdown. Moreover, some local importers are bringing in low-quality lubes. Import of the substandard and cheap products is on the rise, hurting the popular brands," he added.
Private sector slowdown
Private sector investments have significantly declined centering bank loans. Apart from this, the government is turning back from quick rental power plants, while the automobile sector is also passing a tough time.
Former economic adviser to the caretaker government Dr AB Mirza Azizul Islam told The Business Standard, "High lending rates and the government's excessive borrowing from banks have caused private sector investments to decline and this lack of investment is obstructing the growth of the sector."
Power producers are the biggest private sector clients of lubricants. The quick rental plants contribute to 30 percent of the total lubricant demand in the country.
According to the Bangladesh Power Development Board, a number of power plants, including two of Summit Group, and one of Khulna Power, United Power and Sasha Energy each, are to be closed as their contracts have expired.
According to the Bangladesh Road Transport Authority, automobile sales has achieved an average year-on-year growth rate of eight percent between 2012 and 2018. However, sales dropped by eight percent in the last fiscal year, and dull sales also continued in the first half of the 2019-20 fiscal year.
The automobile sector contributes nearly 60 percent to the total demand of lubricants.
Last year, the demand for lubricants was around 1.60 lakh tonnes. The lube market growth was nearly 15 percent during the last three years.
The market saw a five percent annual growth on average during the last decade.
According to MJL Bangladesh, the lube market size was Tk1,000 crore in 2009 and it expanded to Tk3,000 crore until last year.
The lubricant business in the private sector is about a decade old. Until 2000, only the state-owned oil companies were allowed to import, blend and distribute lubricants. The government liberalised the market and banned non-additive lubricants in 2001 to ensure minimum standards.
The top five lube companies accounted for about 55 percent of the total market are – Navana Petroleum Limited (Caltex/Chevron), MJL Bangladesh Limited (Exxon Mobil), Trade Services International (Total), Rahimafrooz (Bangladesh) Ltd (BP PLC), and Ranks Petroleum Limited (Royal Dutch Shell PLC).
According to a market research by MJL Bangladesh, Mobil is by far the market leader with a 26 percent share, followed by BP with 12 percent, Total with eight percent, FUCHS with seven percent, Shell with three percent, Castrol with three percent, Caltex with two percent, GULF with one percent and Servo with one percent.
The remaining 37 percent is dominated by around 100 low-quality and low-cost brands.
According to the annual report of MJL Bangladesh, too many lubricant brands are in the same battle to secure market shares. Besides, the market is flooded with different sub-standard products.
Many recognised brands are facing difficulties as more than 100 brands are operating in the market.
Also, market insiders think that lack of government intervention in the policy to monitor lube trade has made the market uncontrollable.