Rerefining Lags in Developing Markets


Rerefining Lags in Developing Markets

The rerefining industry faces an uphill battle in developing markets, according to a report from consultancy Kline & Co. Regulations around used oil disposal, collection logistics, used oil quality control and consumer attitudes all present challenges in markets such as China, India and Russia.

During a webinar covering the report last week, Kunal Mahajan, project manager for energy at Kline, highlighted the vast differences in the used oil collection and rerefining industries between developed and developing markets.

The study covers North America, China, Western Europe, India, Russia and Brazil, which accounted for almost two thirds of the used oil generation in the world in 2015, Mahajan reported. Five of those markets together generated 13 million tons of used oil; the study includes no estimates for Russia. North America led the groups used oil generation, followed by China, Western Europe, India, Russia and Brazil.

North America and Western Europe collected the highest volume of that used oil, with the help of established infrastructure, plenty of collectors and regulations banning illegal dumping. Though Brazil is also a well-regulated market, its collection rate is lower than Indias. As regulations [in Brazil] define a minimum collection target, the players in the industry are only focusing on meeting those minimums, Mahajan speculated, and therefore are not collecting more used oil than that.

Used oil in North America mostly comes from independent workshops, and automotive and industrial oils are kept separate. Collection businesses, which rerefiners frequently own, operate on a mix of long- and short-term contracts.

Collection in Western Europe varies by country: some have government collection agencies, rerefiners own collection businesses in others, and some have extended producer responsibility schemes in place, making the lubricant supplier responsible in direct or indirect ways for collecting the used fluid. In Brazil, both rerefiners and independent collectors gather used oil, and blenders pay through collection certificates.

Russia has no centralized collection system, so used oil generators must seek out collectors. The size of the country is an obstacle, and heavy industry in distant places reuses the oil on-site or dumps it. Rerefiners or regenerators collect used oil in India and must be registered with regulatory authorities. Large generators sometimes auction their inventory. Many licensed collectors operate in China alongside rerefiners. There, a disposal fee must be paid, as used oil is considered a hazardous waste.

Photo: Safety-Kleen

In Russia, India and North America, most used oil is burned as industrial fuel. Reasons for this range from a lack of adequate rerefining capacity to poor regulatory enforcement. Further, in developing markets, there is a trust issue due to illegal activities of selling used oil as fresh lubricants or selling used oil as a fuel in some markets, Mahajan explained.

In China, Brazil and Western Europe, most of the used oil that is collected is rerefined.

Rerefiners in developed markets (North America, Western Europe, Brazil) focus on producing API Group I and Group II base stocks in order to compete with virgin base stock suppliers. The rerefineries are well supplied, but do not always have enough capacity to recycle all of the used oil.

In developing markets (China, India, Russia), demand for Group II is low, and rerefiners remain focused on Group I oils, said Mahajan. Rerefiners in these countries mostly sell to small blenders that are price-sensitive and have little brand power. The rerefiners frequently have difficulty procuring feedstock.

Kline expects the percent of used oil that is collected will increase in all markets through 2025, except in Western Europe, where it will continue at a high level. Russia, Brazil and China will see the highest increase, with better infrastructure and greater consumer awareness of proper disposal. Rerefining will improve as collection capacity increases, said Mahajan, especially in Brazil.

On the other hand, rerefining is expected to decline in Russia and India. The most prominent decline will be seen in the case of India, he continued. The practice of mixing used oil with kerosene oil and using it as light diesel oil is expected to increase, and the resulting lack of feedstock may lead to some rerefinery closings.

The study, titled Global Used Oil and Rerefined Lubricants: Market Analysis and Opportunities, was published in the second quarter of this year.

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