A shortage of United States dollars in Nigeria has discouraged base oil and additive purchases by local lubricant blenders, creating an artificial scarcity that has raised raw material prices locally.
Although base oil prices are crashing globally, numerous lubricant companies in Nigeria are unable or unwilling to import because access to the dollar in Nigeria is tight and the naira is weak in foreign markets, several players told Lube Report at a lubricants packaging conference in Lagos last week.
Nigerias currency weakened beginning in late 2014 as the decline in global oil prices hurt the local economy, which depends heavily on crude exports. In early 2015, the national government responded by setting an official dollar exchange rate that was significantly lower than market rates. A simultaneous clampdown on foreign currency exchanges was exacerbated by a subsequent grab and hold of dollars.
The naira exchanges to the dollar officially at around 199 naira, while it goes for more than 300 naira on the [unofficial foreign exchange] market, which has had adverse consequences for base oil prices on the local market, said Olaniyi Okedairo, chief operating officer for Ranod Oil and Gas West Africa Ltd.
Lubricant Producers Association of Nigeria Executive Secretary Emeka Obidike concurred, stressing that Nigerian manufacturers depend entirely on imports for all raw materials used for blending, making access to the greenback critical. With imports down, theres an artificial scarcity on the market, he said, which consequently hikes local base oil prices.
Lower base oil prices prevailing across most of the globe would have allowed blenders an opportunity to shift to higher-grade base oils, Okedairo noted. We would have been [able to buy] API Group II or Group III base oils at the price that we are buying Group I base oils, but the scarcity of [foreign currency] has compounded the whole thing.
Prices for lubricant additives have also increased by as much as 100 percent, according to Emmanuel Ekpenyong, head of lubricants for Honeywell Oil and Gas, Lagos. Before now, some blenders preferred using additives from Lubrizol, Infineum and Afton, but blenders are now looking to Asian additive suppliers to cut the cost of production in the face of price [increases].
However, the local hike in base oils prices has not spurred an increase in the prices of finished lubricants in the Nigerian market. Most blenders are waiting to see things stabilize, and watching the competition…, said Ekpenyong.
Obidike added that there is a certain amount of lost profit margin that every factory should be able to absorb before hiking the prices of lubricants. So if there is some 20 percent increase [in raw material prices], it should not result in a hike in lubricant prices locally, he said.
The majors can afford to increase prices of lubricants, but small players cant, he added. Players on the margin of the Nigerian lubricant market are operating at zero profit.
However, Obidike said there is hope that in the months ahead, new shipments of base oils could bring local base oil prices back in line with global prices.