Written by Milind Phadke, Vice President, Energy
Since the recession of 2008, global lubricant basestocks supply and demand have been on divergent paths. Demand growth, beyond the recovery to pre-recession levels, has stalled, but supply growth continues. All the new supply coming to the market is primarily high-performance Group II, III, and IV basestocks. As a result, the global basestocks market has become a buyers’ market. Lubricant blenders, especially independent blenders, can select basestock suppliers and products that best suit their business needs (reducing blending costs, product performance, reducing supply chain complexity, and other such objectives).
In this environment, re-refined basestocks occupy an interesting niche. Between 2007 and 2017, production of re-refined basestocks grew by a CAGR of more than 10%. Supply of Group II quality re-refined basestocks grew at annual rate of more than 60%. And now, some re-refiners in USA and Europe claim to be able to produce Group III quality basestocks.
Regulations covering used oil collection and re-refining and improvements in the quality of re-refined basestocks have helped this segment grow but can take the re-refining industry only so far. In an environment of surplus availability of high-performance Group II/III basestocks, lubricant blenders do not have any incentive to select re-refined basestocks. In fact, judging by how some lubricant brands blended with re-refined basestocks have fared in the market, it appears that consumers are not swayed by the concept.
However, all is not lost. With increasing use of Group III/IV in blending automotive engine oils and with improvements in the collection infrastructure, the quality of used oils collected is improving. Re-refiners who have in-house collection facilities or who have control over the used oil collected can have a low-cost position while offering high performance re-refined basestocks.
As a result, closed-loop re-refining will continue to be the mainstay of the industry. Closed-loop re-refining involves collecting used oil from a large used-oil generator, say a commercial fleet, re-refining the used oil to produce re-refined basestocks that are blended to a finished lubricant and returned to the fleet. Closed loop re-refining helps fleets capture value locked in their used oil while promoting their green credentials. For the re-refiner, the variability in the quality of used oil acquired is reduced, as is the effort required to sell the re-refined basestock. Of course, depending on the environment, closed loop re-refining will be a low-margin business for the re-refiner but important nonetheless in improving the re-refining plant utilization.
The growth in ride sharing (in the short term) and autonomous vehicles (in the long term) will see the rise of fleets in the passenger car segment. These could be future customers for closed-loop re-refining, which today is used mainly by the commercial fleet segment. In order to cater to these passenger-car fleets, re-refiners need to continue improving their technology to be able to provide high performance Group III quality basestocks.
To understand market, regulatory, technology, and other trends and developments that are driving the used oil re-refining market subscribe to Kline’s Global Used Oil and Re-refined Lubricants: Market Analysis and Opportunities report.