Lubricants producers in Africa say the fluctuation of the foreign exchange rate to U.S. dollars has mitigated the impact of declining base oil prices on finished lubricants.
The exchange rate has an effect since all the raw materials are imported. This has had an effect on the delay in lubricant price decreases because the Kenyan shilling has depreciated to the U.S. dollar, said Richard Mugambi, lubricant sales manager for Gulf Energy Kenya.
Irfan Khan, general manager for General Petroleum of Tanzania, said that currency fluctuation has mitigated the reduction in prices of finished lubes.
Our local packing bottle and carton prices are expected to increase due to the U.S. dollar exchange rate, as we have received notification to that effect from our local manufacturer, said Khan.
Lubabalo Bethela, business development manager for Orbichem Services in South Africa is in agreement: The foreign exchange of rand to the U.S. Dollar has a direct impact on the prices of lubes in South Africa because it mitigates the impact of falling oil prices.
A marketing executive with one of South Africas leading independent blenders agreed, saying that, We have seen decreases in base oil prices, but additive prices have not decreased and our currency has weakened against the U.S. dollar. Consequently, essential service rates such as electricity and water tariffs have increased sharply; therefore, very few finished lubricant prices have been reduced.
For his part, James Mutesya, lubricant manager for KenolKobil in Kenya, said the impact of the exchange rate to the U.S. dollar has a major impact on finished lubes and is the reason finished lubes prices have not yet decreased.
We rarely increase prices and we never reduce. We only rationalize once in a while and offer discounts to some markets, sectors and customers, depending on market strategy being pursued, Mutesya said.
We have yet to feel the full impact on low-cost base oils as we land base oils vessels quarterly. The December load was approximately U.S. 15 cents cheaper but will help us regain some margin.
Suri Chetty, business development director for Unichem Services South Africa, agreed that there is a strong link between the exchange rate of the South African Rand to the U.S. dollar because 90 percent of the additives and a high percentage of base oils are imported.
However, Mugambi said that while major blenders have not made any moves, it is only a matter of time before declining base oils prices impact finished lubes.