Richful and Farabi JV to build the first lubricant additive plant in Saudi Arabia
Intensifying Competition in a Saturated Global Market
Richful Xinxiang Company, a leading manufacturer of lubricant additive components and packages in China, and Farabi Downstream Petrochemical Company have entered into a Memorandum of Understanding (MoU) to establish a joint venture for building the first lubricant additive plant in Saudi Arabia.
Limited details are available about the joint venture and its intended manufacturing facility; however, it has garnered considerable interest. While blending lubricants with locally manufactured additives offers certain benefits, some industry experts are questioning the logic behind this investment. They point out that the global production capacity for additives already exceeds demand, especially with the expanding capabilities in India, Singapore, and China. Although demand is increasing, the Middle East still accounts for a relatively small share of the overall global demand
Some industry experts suggest that the joint venture indicates two possible scenarios: the Saudi investors involved likely possess substantial financial resources, given that the long-term gains from this investment may not be exceptionally high. Furthermore, Richful seems to be aiming to broaden its commercial presence and enhance its manufacturing capabilities beyond its facility in China. It is worth noting that Western additive companies withdrew from Russia following the invasion of Ukraine, which has enabled Richful to establish a foothold in that market.
The specifics regarding the announcement of the new venture remain unclear; nonetheless, it is anticipated that the facility will manufacture essential additives such as dispersants, detergents, ZDDP, and antioxidants, which together constitute the primary elements of all engine oil additives.
It is important to note that although the worldwide production capacity for these additives exceeds existing demand, a significant portion of this capacity is not located in the Asia-Pacific region or other regions experiencing growth in demand. This suggests that Western additive producers may face a decline in demand in the EU and North American markets once the new joint venture facility becomes operational, as it will serve regions with increasing demand and pose competitive challenges to established Western manufacturers. Consequently, some in the industry predict that U.S. additive plants may experience significant declines in capacity utilization over the next decade as they cede market share to Richful and the new joint venture, along with their facilities in Asia.
It is important to note that the lack of specific information regarding the new plant’s products and timeline may indicate that the project is still under consideration. Nonetheless, the establishment of the new joint venture plant is likely to proceed. Once operational, it will likely exert downward pressure on lubricant additive prices, compelling Western additive suppliers to find new ways to reduce costs.