Lubricant producers in Nigeria believe that declining oil prices will not impact finished lubricant prices in the country, saying devaluation of the local currency is canceling out the impacts of cheaper base oil.
Godwin Emefiele, governor of Central Bank of Nigeria, told the local press in late November that the impact of falling crude oil prices has made it difficult for the apex bank to continue to defend Nigerias naira. According to an article in the Vanguard newspaper, he explained that the CBNs Board of Governors recognized that it had to allow an upward movement in the naira-to-U.S.-dollar exchange rate.
All the 11 members voted to move the midpoint of the official window of the foreign exchange market, from N155 per U.S. dollar to N168/US$, Emefiele said, according to a report in the Vanguard newspaper.
John Erinne, chief executive officer of Lagos-based petrochemical concern Matrix Petrochem, recognized that opposing forces are impacting the Nigerian lubricants market.
Because of declining crude oil costs, prices of base oils on international market continue to drop. If other factors remained unchanged, this would mean that local blenders could save money on their main raw material. But Nigeria imports all of its base oil, and base oil purchases are transacted in U.S. dollars. Therefore, the devaluation of the naira exerts an upward thrust on the naira cost of such imports.
It is not certain where the balance will lie, but most likely the two counter-forces are likely to cancel each other out, and there may be little or no net impact, Erinne told Lube Report.
Taiye Williams, managing director of blender Lubcon International, said producers are actually importing smaller quantities of base oils at the moment.
However, Williams told Lube Report that because of the devaluation of the naira, the local market is not cutting finished lubricant prices.
He emphasized that the local market has yet to feel the impact of falling oil prices.
Emeka Obidike, executive secretary of the Lubricant Producers Association of Nigeria agreed that the impact of the falling oil prices is canceled out by the devaluation of the naira.
Niyi Okedairo of consultancy Velvet Hill agreed, saying, The falling oil price on the international market is not impacting the price of lubes in the country.
Okedairo added that even when oil prices spiked on the international market, local blenders did not increase prices of lubes in the country, so the falling oil prices present an opportunity to restore profits.
It is only [oil] majors that can afford to increase or reduce prices, but independents cannot, he said.