Volatility in raw material prices and aggressive price competition in the UAE market are forcing local lubricant manufacturers such as Rulexx Lubricants & Grease Industries to look to export markets for growth.
Currently, Rulexx exports 80% of its products from the UAE to markets such as Pakistan and Afghanistan. The manufacturer is seeking further expansion across the Middle East, in Saudi Arabia, Iraq, Jordan, Lebanon, Egypt and Kuwait.
Rulexx’s product portfolio includes automotive oils, gear oils, transmission fluids, hydraulic oils, marine oils, turbine oils, industrial lubricants, motor oils, auto coolants, brake fluids, and greases.
The company’s production facility is situated in the Al Jurf industrial area in Ajman and houses its office, labour accommodation, R&D department and warehouse.
The plant’s storage capacity for base oil is 3 million litres, distributed in 6 storage tanks, each with a maximum capacity of 500,000 litres. Its filling capacity per shift is up to 45,000 litres, equivalent to the total capacity of two fuel tankers.
“We operate five filling machines for small packaging formats, ranging from 500ml to 10l, as well as large quantities, which include 20l, 25l and 200-l drums. We have machines dedicated to filling plastic and metal cans. The facility is equipped to fill up to six different packaging formats at the same time,” says Mohammed Abdallah, export sales manager, Rulexx Lubricants & Grease Industries.
Abdallah points out that intense price competition in the UAE market along with unreasonable payment terms are making it increasingly difficult for manufacturers to offer attractive prices while maintaining high quality standards.
“There are more than 100 factories in the UAE blending lubricants only for the local market. A large number of them do not confirm to American Petroleum Institute (API) or other standards associated with high-quality lubricants, which gives them the advantage of offering low prices that we cannot match,” he says.
Payment terms is another deterrent to doing business in the UAE, according to Abdallah. Six-month credit terms with the possibility of further delay are common in the UAE market, which does not make if feasible for a company that wants to maintain its cash flow. Rulexx maintains its sizeable market share and cash flow in the UAE by dealing only with reputed large enterprises which usually settle payments in 3–4 months.
“Almost all raw material suppliers demand cash payments. Carton and plastic suppliers may give us credit facilities from time to time, but that’s roughly 20% of our costs. No supplier will give us credit for the two major raw materials, base oil and additives. When 80% of our costs are settled in cash payments, we cannot afford to give credit to the market,” says Abdallah.
Abdallah indicates that price is not necessarily the decisive factor for buyers who value quality and after sales service.
“Large enterprises, particularly, calculate return on investment based on quality and after sales service, which are crucial in this market because customers could face unexpected problems anytime. For example, one of our shipments to Iraq was damaged during transportation due to faults in the packaging containers’ caps, which caused leakage of the lubricants. Although, the packaging supplier was responsible for the damage, we took it on ourselves to replace 800 cartons of lubricants because of our customer service commitments,” he says.
To improve its competencies, Rulexx is developing only products that meet international standards such as API’s SN for gasoline engines and CK-4 for diesel engines.
This requires continued investment in its R&D facility and engagement with suppliers of base oil and additives. Currently, Rulexx buys additives from Afton Chemical and Chevron, incorporating their recommendations to achieve high engine performance.
“Currently, only two companies in the UAE, Rulexx and ENOC, manufacture lubricants confirming to the CK standards. Our aim is to find new additives and ways to improve the quality and performance of our lubricants. As the main purpose of our lubricants is to extend the lifespan of engines, we ensure that we source only the world’s best additives, despite having the option to buy cheaper additives from local suppliers. We do not make compromises in choosing the right additives or their right proportions. Therefore, we have never received any complaints with regard to the performance of our products,” says Abdallah.
But maintaining high standards comes at a price, according to Abdallah, who finds it increasingly difficult to compete amidst increasing prices of raw materials, decline in construction activity and falling demand for superior quality products.
“There are plenty of cheaper lubricant substitutes available in the market, where we are unable to compete only because we do not have a cheaper product. For example, customers are opting for lubricants produced with recycled base oil. We are unable to compete in that category because we only use virgin base oil, which is obviously more expensive. Other major concerns for us are the rising prices of raw materials and reduced activity in the construction industry. These trends make it difficult to project growth of the commercial vehicles market and demand for lubricants in those industries. But there may be new opportunities. Demand for vehicles and lubricants is expected to grow significantly in Saudi Arabia where women will be allowed to drive this year,” says Abdallah.
“In order to maintain quality, we cannot reduce our prices, but we have to adopt other tactics such as reduction of margins and negotiation of better prices from our raw material suppliers. We may also be forced to find suppliers who can provide additives with near-matching results as those of our current products,” he says.
