There are many words that can describe the lubricants business in 2016, but static is not one of them.
The first notable event came in January when RelaDyne, one of the nations leading lubricant marketers in the U.S., acquired Parker Oil Co. RelaDyne announced at that time that the Parker Oil transaction would be the first of many for 2016, and indeed it was. By the end of the year the company closed seven deals, including Industrial Action Services, U.S. Refueling, the lubricants division of Hollingsworth Oil Co., Cardwell Distributing and the lubricants and commercial fuel divisions of Slidell Oil Co.
And if that wasnt enough action, Audax Private Equity acquired RelaDyne from AEA Investors in July. This reinforced the fact that private equity remains interested in the lubricants space. Such interest was underscored in November when Tenex Capital Management invested in Pugh Lubricants.
RelaDyne was not alone in gobbling up marketers last year. PetroChoice, arguably one of the largest marketers in the U.S., also closed a number of significant deals. Two occurred in May when the company bought Universal Lubricants new oil business and then Hagan Kennington Oil Co. in June. This was followed by acquisition of the lubricants division of Rex Oil Co. in September. The Universal Lubricants purchase was particularly notable in that it added 15 distribution locations to PetroChoices map, bringing their total to 45 facilities serving 31 states.
Other high profile pairings from 2016 include Shrader Tire & Oil acquiring the lubricants business of Keneco Distributors, as well as Boyer Petroleum, Moore Oil Co. and the distribution arm of Lubrication Technologies merging to form Lube-Tech & Partners LLC. In October, Brenntag snapped up Nocos lubes division-a particularly interesting acquisition in that it showed further investments of public money in the lubricants space.
Beyond marketers, there were several notable acquisitions among independent lubricant manufacturers. These include Houghton grabbing Wallover Oil, Fuchs buying Ultrachem, and Trail Creek Investments acquiring Warren Oil Co.
Lubricant price changes also brought lots of activity. The first came early in the year when lube manufacturers announced price decreases ranging from 2 to 3 percent. With the price of crude oil at the lowest it had been in 11 years and an overhang in base oil supply, this came as no surprise. The decreases, however, did not last long.
When crude prices came off the floor in the first quarter of 2016, manufacturers responded quickly by pushing through one or two price increases. The first was seen in May when many of the leading independents announced increases ranging from 5 to 10 percent. This was followed by many of the same independents pushing through a second round of increases in July ranging from 5 percent to as high as 15 percent. Although the majors did not move with the independents in May, they moved in July with price increase announcements of 4 to 6 percent.
There is more to the pricing story. Aside from the announced decreases and increases, many in the industry were taken aback by some of the surprisingly low prices being pushed across the table for private label passenger car motor oil.
Although there were many other notable events that took place in 2016, the big one that capped the year off was API CK-4 and FA-4 hitting the shelves in December. Whereas these specifications required record-breaking investments in product development, in the view of many marketers, interest in the new heavy duty engine oils was tepid. It was then cooled further when Ford announced in November that FA-4 should not be used in any Ford diesel engines, and the OEM will not be recommending CK-4 in any of its new or old diesel engines due to inadequate wear protection.
With these being just some of the highlights in 2016, what might 2017 look like?
To start, many in the industry say we can expect even more consolidation among lubricant marketers, and at an accelerated rate. In addition to reducing the number of marketers in the business, consolidation will create giants in the industry that move volumes approaching and even surpassing what some of the majors sell. In part, the consolidation will be driven by increased pressure from the big three lubricant manufacturers to align. This presents both threats and opportunities for majors and marketers.
Another development expected to shape the lubricants business in 2017 will be the adoption rate of CK-4 and FA-4. Understanding these new specifications will require more capital for both assets and inventory, and that there still be life left in CJ-4. This too will present both threats and opportunities for majors, independent lubricant manufacturers and marketers.
Other challenges on the radar for 2017 include declining sales volumes, SKU proliferation, increasing cost to serve, replacing an aging workforce and hiring and retaining qualified truck drivers, margin compression on synthetics, lubricant quality and counterfeit products, and others.
Next months column will take a deeper look at some of these issues and how they will likely shape business in 2017.
Tom Glenn is president of the consulting firm Petroleum Trends International, the Petroleum Quality Institute of America, and Jobbers World newsletter. Phone: (732) 494-0405. Email: tom_glenn@petroleumtrends.com