The lubricants business in 2019 was marked by continued consolidation, intensification of rivalry among major brands and private label, and some unexpected events. And although there were fewer price increases than in a typical year, marketers had to do a double take on a double increase that was pushed through. In short, it was a challenging year for some and a year of opportunities for others.
One of the main challenges came into play when base oil manufacturers announced price increases ranging from 5 to 20 cents per gallon in early March. As is typically the case, when base oil prices go up, lubricant prices soon follow-and they did. Chevron was the first to move with an announcement on March 22 that it would be increasing its lubricant prices by up to 6 percent, effective May 6.
Within a week, ExxonMobil and Shell followed with announced increases of the same magnitude and effective on the same date. By mid-April, other majors and most independents also announced increases. Most increases were around 6 percent.
While there is nothing unusual about price increases in the lubricants business-there are often two, sometimes three a year-what was unusual were the nearly back-to-back price increases in base oil at the end of March and early April. Motiva, for example, announced an increase of 10 and 5 cents per gallon on API Groups I and II, respectively, on March 14 and followed that with a 25 to 30 cents per gallon increase in early April.
Adding to the cost burden for blenders, lubricant additive prices were also on the rise. Lubrizol announced an increase ranging from 5 to 9 percent effective June 1, and Aftonannounced an 8 percent or greater hike effective May 22.
The second round of base oil price increases, coupled with the additive price increases, created a challenge for lubricant blenders and marketers. As they were advising their customers about a lube price increase of 6 percent, they were hit with another significant increase that would have to be passed on to their customers. Understanding the challenges associated with announcing two price increases within 30 days of each other, most revised or rescinded the first increase, moving it from roughly 6 percent to 14 percent and pushing the effective date to the end of May.
Although that was it for price increases in 2019, the year was marked by intense competition that resulted in an overall lowering of prices and margin compression in some sectors.
The year also presented several unforeseen events that impacted supply. The first came in March when storage tanks ignited at Intercontinental Terminals Co.’s Deer Park facility in La Porte, Texas. The fire and resulting chemical spill shuttered supply of some raw materials used in additives. As a result, Infineums ability to supply certain heavy-duty engine oil additives was compromised for a period of time. In addition, Valvolines blending plant located in the area of the fire was shut down for nearly a month.
In October there was a massive fire at Lubrizols plant in Rouen, France, which produces lubricant additives used in both automotive and industrial lubricant applications. Although each of these events impacted additive supply at varying degrees, the industry demonstrated a high level of resilience in getting through the disruptions.
Other events that caused tremors in the lubricants business in 2019 included class action lawsuits and other litigation. Among the defendants were Smittys Supply and Tractor Supply, which agreed to a $1.7 million settlement on behalf of Missouri purchasers of 303 tractor hydraulic fluid; Dollar General, which paid $1.1 million in restitution, damages, penalties and costs to the State of New York for selling obsolete motor oil; and Amalie Oil, which settled with purchasers of its obsolete Xcel Premium motor oil for up to $5 per quart.
In July, the National Conference on Weights and Measures voted to pass amendments to the National Institute of Standards and Technology Handbook 130. The amendments, which took effect January 1, 2020, require that THF is labeled with the primary claim or claims met and a reference to where any supplemental claims may be viewed, among other requirements.
In addition to the more tumultuous events in 2019, there were a significant number of triumphs. The first came in January when Pugh-Apollo-Veterans acquired Georgia-based Halco Lubricants and Jonesboro, Arkansas-based Mid-South Sales. It was later announced in March that the combination of these companies would be operating under the name Cadence Petroleum Group.
That same month, McPherson Cos. acquired certain assets of Retif Oil & Fuel LLC. Brenntag strengthened its United States lubricants business by acquiring the lubes division of Reeder Distributors Inc.
February ushered in RelaDynes acquisition of Dutch Lubricants and Rachel Oil Co. By years end, the company added Jasper Oil, Legacy Fueling and Lubricants, Circle Lubricants, and Richard Oil and Fuel to its list of acquisitions.
Other notable acquisitions in 2019 include Offen Petroleum buying Allied Energy; PetroChoices acquisition of Superior Petroleum; Parkland Fuel picking up KB Oil, Tropic Oil and Mort Distributing; Brenntag gobbling up B&M Oil Co.; and Walthall Oil Co. acquiring Kunkle Oil Co.
On the base oil front, HollyFrontier completed a previously announced acquisition of Sonneborn.
And then, to the surprise of many in the industry, Amalie Oil Co. announced its acquisition of Lubricating Specialties Co. in March. LSC was the largest independent lubricant manufacturer in the Western United States, with three production facilities in the Los Angeles area.
These are just some of the highlights from 2019. Others include the hard work done to advance GF-6, planning for the impact on base oil availability and lubricants from the International Maritime Organizations new legislation, the market entry of Costco private label motor oils and more.
While it is very likely we will see more of the same in 2020 with regards to consolidation, price fluctuations and other miscellaneous surprises, it appears that some of the trends and pressure points we are seeing and the opportunities they present could converge and give birth to something new and unexpected in 2020.
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