Currency Devaluations Wipe Out Base Oil Price Cuts
Lubricants producers in Africa say fluctuations in foreign exchange rates to the U.S. dollar have mitigated the impact of declining base oil prices on finished lubricants. The exchange rate has an effect since all the raw materials are imported, said Richard Mugambi, lubricant sales manager for Gulf Energy Kenya. This has had the effect of delaying lubricant price decreases because the Kenyan shilling has depreciated to the U.S. dollar.
Irfan Khan, general manager for General Petroleum of Tanzania, agreed that currency fluctuation has diminished the reduction in finished lubes prices. Our local packaging, 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, he said.
Lubabalo Bethela, business development manager for Orbichem Services in South Africa concurred: 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, 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 of low-cost base oils as we land base oil shipments quarterly. The December load was approximately U.S. 15 cents cheaper and will help us regain some margin.
Suri Chetty, business development director for Unichem Services South Africa, noted 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, Gulfs Mugambi said that while major blenders have not made any moves, it is only a matter of time before declining base oil prices impact finished lube prices.