ILMA Compoundings - Jul/Aug 2021 - 15

INCREASES BY GRADE: NOVEMBER 2020-JUNE 2021
Grade
SN150
SN500/600
Bright stock
N100
N220
N600
4cSt*
Group
I
I
I
II; II+
II
II
III
$2.50-$2.65
$1.93-$2.15; $2.30-$2.50
$2.05-$2.18
$2.12-$2.22
$2.30-$2.80
*Group II+ and Group III increases include a partial round in November 2020.
" That's what we struggle with - asking customers to
pay more, but we can't get them all the product they need, "
another market player said. " Prices have to be sustainable. "
While firm pricing has caused some smaller players to
hold off, large customers continue to buy to meet their
own demand. " We are hearing a lot of weariness, and it has
slowed in places, " one player said. " But when one customer
walks, another one comes in. "
NOT ONLY BASE OIL - BLENDERS FACE MYRIAD
PROBLEMS
Relentless base oil increases have been only one driver of
rising lubricant prices. As of June 23, lubricant prices had
risen six times in response.
Early in the year, blenders cited higher base oil prices as
they communicated their own increases, but several factors
contributed to their rising costs:
* Additives prices increased by 8% three times (unprecedented)
amid shortages.
* Packaging costs skyrocketed with materials difficult
to source.
* Freight costs rose up to 40% since last year with limited
available space.
* Ongoing truck driver shortage caused delays.
THE ECONOMY PLAYS A PART
Elevated pricing data underlies inflation, which the Federal
Reserve views as transitory for now.
On inflation, economists expect the full-year Consumer
Price Index (CPI) to rise 2.8%, and they expect a similar
2.7% gain in the personal consumption expenditures (PCE)
price index. That is well above the Fed's 2% target but is
expected to trend down through the year toward 2% for
both PCE and core CPI by the fourth quarter.
" There is a significant risk of inflation picking up in the
U.S., and I don't think it's transitory, " said Kevin Swift, chief
economist at the American Chemistry Council. " I'm not
talking about 1970s type [of inflation], but it could get
to rather uncomfortable levels or levels we haven't seen in
a generation. "
Light vehicle sales are firing on all cylinders despite the
semiconductor shortage hampering production, with April
sales at 18.5 million units, the highest since July 2005.
Dealer inventories fell to a record low of 33 days of supply as
of May 1, compared with normal levels of around 65 days.
Manufacturing activity continues to be robust, registering
a record-high 64% in May. The previous record high was
63.7% in March. The manufacturing purchasing managers'
index logged its 12th consecutive month of expansion.
Economists once again raised their U.S. gross domestic
product (GDP) forecasts for 2021, but the pace of upward
revisions is slowing. After first-quarter GDP growth of 6.4%,
consensus is for full-year GDP growth of 6.6%.
THE ROAD AHEAD IS UNCERTAIN
It is not a matter of if the market returns to an amply supplied
state - it is a matter of when. " This is not sustainable;
the bubble has to burst, " a market player said.
This supply/demand imbalance is likely to last into 2022, but
global base oil production capacity ultimately exceeds demand.
After pandemic recovery, lubricant demand is expected
to slowly decline and to never return to 2019 or previous
levels. Decline in demand from the passenger car motor oil
sector will be a major driver as automakers transition toward
hybrid and electric vehicles.
There will still be an outlet for base oils in other types of
lubricant, fluid, process oil and grease end uses.
Hay is senior editor manager at ICIS. She may be
reached at amanda.hay@icis.com. Joseph Chang,
global editor at ICIS Chemical Business, also conducted
reporting for this article.
15
Amount (per gallon)
$1.40
$2.20
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