HD OEM and Lubricant Trends

May 2010

Presentation Topics

Market data and OEM trends Emissions reduction and devices

Lubricant trends API categories and new developments HDEO market trends

HD OEM Market and Trends

Market dataHD OEM Market

HD Market: “Global” Production Position

September 30, 2009Fuels and Lubricants, Bengt Otterholm

4

67

71

74

88

96

99

112

130

175

207

0 20 40 60 80 100 120 140 160 180 200 220

Daimler

Volvo

Tata

Paccar

CNHTC

FAW

DongFeng

MAN

Scania

Iveco

1 000 units

• Volvo 96• Renault 44• Nissan Diesel 18• Mack 17

• Mercedes 122• Freightliner 52• Sterling 14• Fuso 14• W. Star 5

• DAF 52• Kenworth 38• Peterbilt 22

Other• Shaanxi China 60• Foton China 57• Ashok L. India 56• Internat’l USA 35• Kamaz Russia 28• Hino Japan 30• Chongqing China 24• Maz Russia 21• Isuzu Japan 18

Produced Heavy Duty Vehicles – 2007 (estimated)

HD Market: Engines – On Road

Truck sales remain at historic lows with minimum pre-buy occurring prior to US 2010 emission limit requirements. MY2010 trucks will cost up to $10,000 more and, most, will require use of diesel exhaust fluid (DEF).

HD Market: Engines – Off Road

Off road engine sales are also remain low, but are expected to rebound as US Interim Tier 4 emission limit requirements phase in from 2011 – 2014. I Tier 4 limits will require most manufacturers to use cooled EGR and DPF strategies.

HD OEM Market and Trends

Market data

OEM trends Emissions reductions

HD OEM Trends

Emissions: EPA 2007 Rule

Requires reductions of 95% in NOx and 90% in Particulate Matter (PM) emissions from HD Diesel Engines

1998Particulates(g/hp-hr)

0.10

3NOx (g/hp-hr)

0.01 2 4

2002

0.02

CI-4 CH-4

2.5

CJ-4

Use of EGR Increase EGR Rate

Po

st T

reat

men

t D

evic

es

2007~2010

Emissions: Global Emissions Regulations

Emissions: Impact on HD Fleet in Europe

Quick transition to new engine types Euro III introduced in 2002

Euro IV introduced in 2006 – 1/3 of the

market in 2 years

Euro V to be introduced in 2009

New engines = new requirements Increasing demand on lubricant

performance

Source : ACEA / Afton estimate

Trucks market share (>16t)WE 2008

Emissions: EURO VI Technical Solution

All OEMs will need DPFs and SCR to comply with Euro VI

Different strategies how TC and EGR are used

All OEMs need mid/low SAPS oils

Major impact on oil robustness and oil drain intervals

HD OEM Market and Trends

Market data

OEM trends Emissions reductions

• Devices– EGR

NOx reduction

HD OEM Trends

HD OEM Market and Trends

Market data

OEM trends Emissions reductions

• Devices– EGR– DPF

Particulates reduction

HD OEM Trends

HD OEM Market and Trends

Market data

OEM trends Emissions reductions

• Devices– EGR– DPF– SCR

NOx reduction

HD OEM Trends

HD OEM Market and Trends

SCR

HD OEM Trends

HD OEM Market and Trends

Market data

OEM trends Emissions reductions

• Devices• Impact on lubricant

HD OEM Trends

HD OEM Market and Trends

HDEO Trends

API HDEOHDEO Trends

HDEO: API “C” Category History

Normal-Sulfur Fuel

APICF-4

Low-Sulfur Fuel

1988 1991 1995

Year of API License

Oil Quality Levels

2002

API CH-4Low- & Normal- Sulfur Fuel

1998

OEMSpecsfor HigherSoot Levels

API CE

API CG-4

2006

CI-4Exhaust Gas Recirculation (EGR)

1999

CJ-4 Ultra-Low Sulfur Fuel (EGR & DPF)

HDEO:EPA 2007 Impact of Oil Formulation

ASH = 1.0 %S = 0.4 %P = 0.12 %

Volatility = 13 %BO : Gr-II

ASH = 1.2-1.5 %S = No limitP ~ 0.14 %

Volatility = 15 %BO : Gr-I & Gr-II

CI-4/CI-4+ Lubricant CJ-4 Lubricant

ACEA E9-08

API Category No new license Date obsolete

CF-4 01 Jul 2007 30 Jun 2008

CG-4 01 Sep 2008 31 Aug 2009

CF-2 29 Jul 2009 01 Feb 2010

CF 30 Dec 2009 30 Dec 2010

EMA Update (December 2009)

API Category Licensing Update

Oil and water clearly separated

Oil and water clearly separated with layer of emulsion still visible

API CF API CF API CG-4 API CH-4Old Add Pack

API CH-4New Add Pack

API CI-4 API CI-4 PLUS API CJ-4

No oil-water layer visibleSolid emulsion Source: Caterpillar presentation to API

DEOAP, August 2008

EMA Update (December 2009)

Caterpillar Emulsion Test Field testing to correlate laboratory results to field The O-West bench test will be set up at a third party laboratory

and an ASTM test method will be pursued

EMA Update (December 2009)

EMA Concerns EMA concerned about shear stability EMA concerned about EOAT shift (not supported by SP data) EMA now has a new concern about oil filter plugging (using

standard oil filter) Fuel economy remains an active topic ( less than 3.5 HTHS?)

Preparing for next HDEO Category

Next Generation HDEO API CJ-4 summary

• It took almost five years to develop CJ-4 (4Q2002 to 4Q2006) at a total cost of ~$5.5 MM in total test cost (not including manpower).

Drivers for a new category in 2014-2015:• Fuel Economy for CO2 reduction (which may include lowering the J300

HTHS)• Replacement of Existing Engine Tests• Biodiesel Test (B20?) • Chemical Box (0.1 wt. % P?)• Turbo deposit test?

Potential impacts include a movement to lower viscosity grades with need for enhanced oxidation & corrosion control

HDEO Trends

API HDEO

Global HDEO demand

HDEO Trends

Strong Growth in Asia-Pacific: China projected to have highest growth (2x global avg.)

EMEA growing just under global average: E. Europe projected to have highest growth, followed closely by M.E. and

Africa W. Europe flat

N.A. flat/decreasing

L.A. growing at global average

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

-1.0 0.0 1.0 2.0 3.0 4.0 5.0

3,000Kilotonnes

% Growth

North America

3,000Kilotonnes

EMEA

Asia-Pacific

Latin America

Overall Market Demand is INCREASING

0

2,000

4,000

6,000

8,000

10,000

Kilotonnes

2007

L.A.

N.A.

A-P

EMEA

8,543

2014

L.A.

N.A.

A-P

EMEA

9,656

CAGR

Global: 1.80%

Asia-Pacific: 3.50%EMEA: 1.70%

Latin America: 1.80%

North America: -0.20%

Global HDEO Demand Projection

0

2,000

4,000

6,000

8,000

10,000

2007

15W-40

10W-4010W-30

Other Multigrade

Other Monograde

SAE 40

SAE 30

8,542.60

2014

15W-40

10W-4010W-30

Other Multigrade

Other Monograde

SAE 40

SAE 30

9,656.40

VIS Grade CAGR

Other Monograde 1.40%

SAE 40 1.80%

SAE 30 0.90%

Other Multigrade 6.00%

15W-40 2.20%

10W-40 0.50%

10W-30 -2.00%

Global HDEO Demand Projection by VIS Grade

Highlights:• 15W-40 has most volume demanded of any VIS grade• Growth rates for multi-grades are higher than growth rates for

mono-grades

0

2,000

4,000

6,000

8,000

10,000

2008

All Other(CC/CD/CE/CF2)

CG4/CF4

CH4

CI4/CI4+CJ4

7,296

2013

All Other(CC/CD/CE/CF2)

CG4/CF4

CH4

CI4/CI4+CJ4

7,741

CAGR

Total 1%

All Other -5.40%

CG4/CF4 3.40%

CH4 4.90%

CI4/CI4+ -1.40%

CJ4 26.30%

Highlights:• The Global API Market is changing:

-Demand will see a shift to more recent API specs and higher performance HDEO

Lubricant Additive

0

100

200

300

400

0

5

10

15

20

25

30

All Other

2008

2013

264

189

CG4/CF4

289

353

CH4

124

165

CI4/CI4+

209192

CJ4

18

72

11.30 12.10 12.30 14.40 14.90

Growth (CAGR)

Treat Rate %

Global HDEO Demand Projection by API Specs

Summary

Emissions reduction is biggest driver

Use of aftertreatment devices require special lubricant properties Low SAP oils Improved robustness to maintain ODIs

Increased use of biofuels

Trend to global specifications

Trend towards multigrade and higher performing oils