The two most
critical aspects for RRBO’s bright future
The global lubricant market is highly stagnant in terms of demand and fairly balanced in terms of supply. The current lubricant volume is estimated at 39 MT and expected to grow by 1.2% per annum. The global base oil refining capacity is operating at 75~80% of available capacity, implying a long market.
In spite of some of Group I base oil refineries closing down (mainly in Europe), the base oil supply market would still remain quite long as we see emergence of Group II refineries across the world, reflecting a shift from Group I to Group II base oils.
When the virgin oil market is long and prices of base oils have been much lower compared to the pre-July 2014 level, does the oil buyer need to look at re-refined base oils (RRBO) as an alternative to virgin base oils in such a long favourable market?
Fortunately for the RRBO industry, the response from most of the buyers in lubricants would be “yes”!! Please read this article to understand why the answer would be “yes”.
This article is aimed to look at two aspects: 1) What are the reasons for base oil buyers and lubricant companies in general to look at RRBO, as an alternative to virgin base oils? and
2) What is needed by the RRBO industry to convert the favorable response into the commercial purchase from these buyers?
So let’s look at the first aspect. From my experience as a global buyer in the lubricants industry, the smart procurement professionals continuously look for alternatives to create a strong supply resilience and lower the input costs. Of course, it is easier
said than done, as they need to work very closely with the formulators in technology and marketing colleagues to ensure that they don’t compromise on the performance and quality of the finished lubricants. This helps to build the sustainable advantage for their organizations.
These buyers recognise that the crude price is going to bounce back as the demand-supply situation changes and lubricant companies need to invest into the future for a sustainable advantage. Also with the ‘Responsible Care’ philosophy of the organisations, these buyers are looking to buy ‘environmentally- friendly’ raw materials and they would only accelerate their efforts, if these eco-friendly materials are available at an equivalent quality and competitive prices.
Additionally, there is an element, which is gaining more attention in terms of the selection of base oils – the change in the OEMs’ approach towards RRBO based lubricant approvals.
Though some OEMs will be more sensitive than others when facing a new base oil and may require a presentation of the new base oil, they won’t treat RRBO differently from any other base oils. Buyers of base oils in lubricants companies need to recognise this element and work closely with Technology and OEM marketing. We have covered this in more detail later in this article.
These procurement professionals do understand that the price differential between virgin base oils and RRBO is always going to be there as used oil price is also linked to crude oil price. So irrespective of cost environment, they would always help their organisations to capitalise on this differential and improve the margins of finished lubricants.
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LUBE MAGAZINE NO.131 FEBRUARY 2016
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