Both companies say they are taking advantage of opportunities that consolidation creates for contract blenders. Their approaches have a notable difference, however. Chemtool has decided to use equipment far bigger than any that has ever been employed for grease-making, while Axel is sticking with conventional-sized equipment to produce in smaller volumes.

Both companies are taking steps to enhance their positions as market leaders. Chemtools invite comparisons to past efforts to produce grease on a large scale -some of which have not panned out.

SPEAKING VOLUMES

Signals are mixed when it comes to trends for the North American grease market. The recently published 2005 Grease Production Survey Report from NLGI International (formerly the National Lubricating Grease Institute) showed output growing at an average annual rate of 3.1 percent from 2002 through 2005. On the other hand, data from the National Petrochemical and Refiners Association indicated that grease sales in the United States dropped an average of 1.6 percent per year over the same period.

Most observers consider the NLGI data more reliable because the institutes research focuses exclusively on grease. The NPRAs surveys cover all types of lubricants, and the association itself cites grease as a weak spot. Still, because the institute measures production, its report does not indicate whether consumption in North America is growing or declining.

Our figures have been going up for 10 years, so Im confident that production is increasing, said Joseph A. Lurz Jr., president of J&A Consultants in Spring, Texas,which compiles theNLGI report. But I wouldnt venture to say anything beyond that.

It is clear that the market has not been very attractive, even for many companies involved in it. The number of suppliers has decreased and numerous plants have closed in recent years as the industry struggled to cope with significant overcapacity.

GROWING APPETITE

Chemtool, however, is showing a great deal of enthusiasm for the market. In late 2003, it opened by far the largest grease plant in the western United States, a facility in Tehachapi,Calif., with capacity to make 75 million pounds (34,000 metric tons) per year. In June of this year, it expanded its main plant in Crystal Lake, Ill., and a month later announced plans to build another plant with capacity to make 50 million pounds per year.

In fact, officials stated that the companys goal is to grab half of the North American market. Certainly, it is not far from having the capacity to do so. With four existing plants -including facilities in Milan, Mich., and Elkhorn, Wis. -its current capacity is somewhere between 150 million pounds and 175 million pounds, the highest on the continent. The new plant would raise that number to between 200 million and 225 million pounds. North American production was 530 million pounds in 2005, according to NLGIs survey.

Chemtool officials say there is good reason to get bigger. They contend that the market, consolidating as it is, is suited to support a dominant leader if a company can serve as an efficient contract blender.

If you look around, it seems theres a grease plant closing every year, said Curt Ellison, vice president of sales for Chemtools Metalcote grease business, and often its major oil companies who decide the grease business takes too much time compared to other things they can do. As these companies get out of the business, its our desire to take on more business, and in doing so, we think we can become more efficient.

Axel Christiernsson has a similar if less ambitious strategy for Europe, which saw a4percent drop in output last year, according to NLGI. Axel, too, is trying to take advantage of mergers by grease suppliers and plant closures.

NICHE DIGGING

[Grease] is becoming more of a niche than central core business for these types of companies, Axel Managing Director and Chief Executive Officer Johan Stureson said. It is still essential for them to provide greases as part of their lubricants portfolio, but it is less essential to maintain in-house grease production. In addition, many of the present-day grease plants are old and in need of major investment. Axel offers the possibility of flexible manufacturing capacity as an alternative, shifting internal fixed costs to external variable costs.

The company,which is based in Nol, Sweden, near Gotenborg, is also growing. In July it acquired Shells Christol Grease SAS, of Niort, France, which sells 3,000 metric tons of grease per year. Axel already had plants in Nol and in Heijningen, Netherlands. The latter is slated for an expansion that will raise the companys capacity from 13,000 tons to 20,000 tons.

Officials say the company is responsible for roughly 10 percent of Europes grease production -193,000 tons (425 million pounds) in 2005, according to NLGI. Management declined to formally discuss goals for growth, but sources said privately that Axel would like to approximately double its market share. Stureson said the company is positioning itself to take on more volume if and when plants close.

We will continue to invest in production equipment so that we always have some degree of spare capacity to be able to take on such commitments, he said. Here, we believe we are quite unique, expanding where others are shrinking.

MINES BIGGER

Chemtool and Axel are taking quite different approaches in terms of facilities. Production on a massive scale is a key part of Chemtools plan. Last summers expansion at Crystal Lake consisted of installing a130,000-pound grease reactor, along with a finishing kettle of equal size. Chemtool and other industry sources said this behemoth appears to be the largest grease reactor ever. In fact, it is more than 50 percent larger than 88,000-pound (40-ton) vessels at JSCAzmols plant in Berdyansk, Ukraine, believed by many to have been the largest reactors before Chemtools.

Chemtool says the new equipment lowers costs by cutting in half the time needed to make130,000 pounds of grease. But the Crystal Lake expansion is only the first step in the companys big-batch strategy. Officials say the new plant, which will be located in northern Illinois, will have 10 of the giant vessels -five pairs of reactors and finishing kettles.

Axel says it will continue producing on small and medium scales.

In our market, we do not envision providing vast amounts of a single product, at least not at the same time and place, Stureson said. We presume the reason for Chemtools choiceis that they see the development of the North American market in a different way – that it will become a sellers market with an even higher degree of commoditization and me-too products, and where differentiation will be through abstract branding rather than physical product. In our scenario, [Europe] will be a buyers market, and Axel will listen to customer requirements and adapt accordingly.

SMALL, BUT CHOICE

The operator of one of Europes newest grease plants also anticipates growing demand for customized products, and an increased need therefore for small-scale production. Rhenus Lub, of Monchengladbach, Germany,opened an 1,100-square-meter (12,000 sq.ft.) plant in that city in November 2005.

We expect an increasing requirement for high-performance greases in the medium- to long-term, particularly in key industries such as the car industry, the automotive supplies, the mechanical engineering, the roller bearing and steel industry, also the aerospace and food industries, owner Max Reiners said. In order to be in a position to support multifaceted technological applications with specialized greases, the plant is set up for the production of alarge product range and small select batches.

Rhenus new plant, which cost Euro 16 million (U.S. $20 million), has 15 production lines with reactors ranging from 50 kilograms to 10,000 kilograms (110 to 22,000 pounds).

Chemtool says its business is not just about commoditization, that it recognizes the markets advancing technical needs and has developed innovative products. But officials maintain that the market also demands some products in high volumes, and that these present opportunities to drive down manufacturing costs.

PUMPED UP

The grease industry has seen previous attempts to produce on a large scale. In the late 1970s,Texaco developed acontinuous grease unit,an in-line process that mixes and cooks ingredients as they flow through pipes, rather than in vessels as in conventional batch processes.

Texaco and several other companies built CGUs, and the facilities had exceptional production rates. Chevron, which later bought Texaco, says its plant in Port Arthur,Texas, makes 5,000 pounds of grease per hour. But that did not prevent several of these mass-output units from closing. Shell closed its CGU in Galena Park, Texas, a year ago, leaving Chevrons and an ExxonMobil unit as the only ones operating in the United States; units in Europe also closed. Chevron and Shell officials maintain that continuous grease units can be advantageous, despite their checkered history.

In my view, it makes a lot sense if you have abase grease that serves as a large component of your business, said Tom Hansel, lubricants technology manager with Chevron Global Lubricants in Richmond, Calif.What hurts is if you start doing a lot of blending for other companies and they all want their own customized product. Then you lose your economies of scale.

Ellison said Chemtool felt that big-batch equipment better fit its purposes.

With [continuous grease units], you cant just switch from, say, a lithium grease to a polyurea grease, because the raw materials and everything are throughout the pipes, he said. Batch production allows so much more versatility.

BRACING FOR CHANGE

In the Ukraine, Azmol still operates CGUs, along with semi-continuous units and batch equipment, but it serves as testament to another type of under utilization. The Berdyansk plant is the biggest in Eastern Europe, able to make150,000 metric tons per year (that is, more than double the combined capacities of all four Chemtool plants). The company says it operated at near-capacity rates before the breakup of the SovietUnion and supplied approximately 60 percent of the grease consumed in the empire. Today,however, it produces approximately 20,000 tons per year, a fraction of its potential.

The drop was caused by the U.S.S.R. collapse, said Sergey Sergeyev,first deputy chairman of the companys board of directors. The economic crisis started then. Links between industrial enterprises were broken, and some plants went bankrupt.

Azmol is working to rebuild sales volumes, and officials say they are optimistic because economies in the former Soviet republics are improving. Of course, with the company only using between 10 per-cent and 20 percent of its grease plants capacity, it still has far to go.

Chemtool obviously wants to avoid such idleness. The industry will have to wait to see if it succeeds. The company says it is considering several sites for the new plant but is still seeking local government approval. Until a site is selected, it will not set a construction schedule for the project.

In the meantime, it seems a safe bet that the grease markets in North America and Europe will remain in the doldrums -and that Chemtool and Axel Christiernsson will continue trying to grab more of them.