With this, strategies such as integration and mergers and acquisitions could help manufacturers combat the margin crunch and competition from low-cost mineral oil lubricants.
New analysis from Frost & Sullivan (chemicals.frost.com), The U.S. Synthetic Lubricant Base Stock Markets, finds the market earned revenues of $901.2 million in 2007 and estimates this to reach $1.28 billion in 2014.
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"The growth of U.S. synthetic lubricant base stock markets is mainly driven by high-performance applications that require high viscosity indexes, higher flash points, lower pour points, and very low volatility," notes Frost & Sullivan Research Analyst K. Lakshminarayanan. "These requirements make synthetic lubricants valuable blending components when compounding for extreme service at both high and low temperatures."
Unlike mineral oil lubricants, synthetic lubricants are produced from polymerization techniques, and their properties are dependent on the nature of monomers and the molecular weight of the polymeric chain. Hence, these variables can be altered according to needs like excellent heat control, wear resistance, and energy efficiency for high-performance applications. Other benefits of synthetic lubricants include reduced operating costs, excellent fuel efficiency, improved equipment durability, and extended drain intervals.
Soaring crude oil prices, along with competition from mineral oil lubricants, prove to be major challenges for the synthetic lubricant base stocks. While mineral oil-based lubricants already account for about 95 percent of the total lubricant market, a new type of base stock, Gas to Liquid (GTL), expects to emerge as a major threat to synthetic lubricants.
"In addition to being less expensive, GTL lubricants are completely saturated, less volatile, and devoid of nitrogen, sulfur and aromatics," says Lakshminarayanan. "These qualities are likely to make them a preferred lubricant base stock in the coming years."
To overcome these challenges, companies must expand their capacity, integrate vertically, merge, or acquire competitors in the market. Exxon Mobil has integrated vertically and can have a check on the price of the final product. Similarly, Ineos acquired BP Amoco. Chemtura acquired lubricant manufacturers such as Anderol, as well as base stock manufacturers such as Hatco Corporation, Uniroyal and Great Lakes Corporation. Akzo Nobel sold its phosphate esters to Supresta, and soon thereafter, Israel Chemicals Limited acquired Supresta. Private equity investors also enter into the market. They buy companies which are experiencing losses, consolidate and make them profitable. Recently, Chemtura is speaking with private equity firms like Apollo and Blackstone for the buyout.
This trend is expected to happen in the future, especially in the case wherein the company lacks vertical integration with respect to the production of raw materials. Otherwise, these companies may face profit margin squeeze.
Because of increase in prices in coming years, companies will consider the usage of synthetic lubricants as a last option. This is mainly because of the price competitiveness from other categories such as mineral oils or GTL lubricants.
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The U.S Synthetic Lubricants Base Stock Market - N33C