Fast Facts - 2021
While the COVID-19 pandemic and its impact on the lubricants business continued into 2021, the industry did an amazing job navigating through some very challenging times. With extraordinarily tight supply of nearly all raw materials and finished products, force majeures, epic storms, widespread allocations, significant increases in the cost of goods, labor shortages, and other disruptions and distractions, most figured out ways to meet the needs of their customer to Keep America Moving.
Although it was a tough year, the actions many took to get through it spoke volumes about supplier and customer relations, collaboration, innovation, and determination.
The following is a look back at some of the events that shaped the lubricant business in 2021.
Lubricant Prices
- There were eight rounds of lubricant price increases announced in 2021, one of these increases (occurring in Q4) primarily affected synthetic lubricants.
- The number and magnitude of increases seen in 2021 contrasts sharply with an average of two price increases seen annually from 2010 to 2020, and many years prior.
- In addition to the record-breaking number of increases, the magnitude of the adjustments was also remarkable.
- Where price increase announcements historically range from 6 to 8% over the past 10 years, and a few percentage points lower in prior decades, the eight increases announced in 2021 on average was approximately 14% each.
- When taken together, these increases moved the price of lubricants up by $2.50 to $3.50 a gallon and higher.
- The magnitude of the increase varied by lubricant type, with synthetics at the high end of the range.
- Each of the lubricant price increases were driven by the higher cost of raw materials and other inputs, and short supply.
- The price of Group II base oil increased by close to $2.00 a gallon, and Group III by just over $3.10.
- Although base oil price increases responded to changes in crude oil prices, base oil increases were driven primarily by global imbalances in supply and demand.
- There were three (four counting the one that bridged 2020/2021) lubricant additive increases in 2021 and they moved additive prices up by 25 to 30%. The magnitude of the combined increases varied by additive type and other factors.
- Adding to these cost burdens, other inputs also increased, including:
- Transportation costs jumped by 30 to 35% over pre-pandemic levels.
- The costs to get urgent loads for inbound raw materials or outbound shipments to customers increased dramatically in 2021 due to the severe supply chain shortages.
- Jug prices went up $0.10.
- Pail prices increased by close to $0.45.
- New one-way totes went up close to $20.
- New drum prices increased to over $40 and were challenging to source.
- Pallet prices hit record highs, up close to 50%, and supply struggled to keep pace with demand.
- Freight costs went up 30 to 40% and it was very difficult to secure bulk truck carriers.
- The shortage of CDL drivers continued to push wages up and availability of drivers down.
- In addition to higher costs in these areas, blenders and marketers saw higher costs for insurance, maintenance, wages, fuel, and others.
Supply Chain Disruptions
- Refinery production (including base oils) was significantly reduced in 2020 as oil companies adjusted capacity utilization in response to the historic declines in global demand due to the pandemic. Lubricant additive manufacturers also dialed back production to adjust to lower demand. As a result, we entered 2021 with low supply of base oil and additives. Producers were in a challenging position to dial supply back up in 2021 in the face of the uncertainties around the pandemic.
- The record-setting winter storm that hit the Gulf region in February also disrupted the supply of base oil and additives and added stress to the supply chain.
- While base oil supply was tight during much of the first half of 2021, supply loosened somewhat during the balance of the year.
- Supply of lubricant additives, however, particularly PCMO, HDEO and those used in drive line lubricants (i.e., gear oil, THF, and others) were extraordinary tight throughout 2021.
- Tight supply of additives compromised lubricant production so severely that there was wide-spread allocation of finished lubricants, and some blenders, including majors, were unable to provide enough supply to meet demand for certain types and grades of motor oils.
- In addition to hobbling supply of lubricants from the majors, distributors were also challenged to source lubricants from some independent lubricant manufacturers. This was particularly challenging for many with private label brands manufactured by independent blenders.
- Adding to the private label challenges, some majors required their distributors to source the distributor’s private label from them. With supply as tight as it was, these distributors were unable to get private label brands from the major until after the major met demand commitments for their branded lubricants.
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Base Oil
- There were five base oil price increases in the first half of 2021.
- The price of Group II base oil increased by close to $2.00 a gallon, and Group III by just over $3.10.
- As shown in the graphic below, crude oil had less impact than other factors driving base oil increases in 2021.
- The base oil increases seen were primarily driven by global imbalances in supply and demand.
- Supply of 4 cSt Group III was particularly tight in 2021, and although loosening a bit as the year went on, supply of bright stock remained tight.
Diesel Exhaust Fluid
As with the price of lubricants since the start of the year, the price of Diesel Exhaust Fluid (DEF) has also increased significantly in 2021. In just the last two months alone, DEF prices have gone up over 40 cents a gallon. Higher transportation, packaging and distribution costs, and the skyrocketing price of urea (one of two components in DEF), are all contributing to increased pricing.
As shown in the graphic below, although there were ups and downs in the price of urea in 2019 and 2020, these fluctuations pale in comparison to the sharp increases seen in 2021.
The year started with urea prices in the area of roughly $295 a ton, by the end of October prices reached close to $680, representing an increase of 130%. The biggest spike in prices came in September and October when the price of urea shot up by close to $100 and $162 a ton, respectively.
To understand why urea prices took off on such a sharp trajectory starts with a basic understanding of how DEF is produced, and the chemical intermediates involved in the process. More>>
Mergers and Acquisitions
- Although the pandemic certain presented unpreceded challenges to businesses in 2021, M&A activity continued. Of particular note, due to the size of the deal and potential impact, was RelaDyne’s acquisition of PPC Lubricants, and then Drydene Performance Products and the Drydene brand in September. It is also notable that American Industrial Partners announced the acquisition of RelaDyne, Inc. in December.
- Other noteworthy acquisitions in the lubricants business in 2021, are shown below.
- Offen Petroleum Closed on Two Strategic Acquisitions (a portfolio of branded motor fuel dealer contracts from Petroleum Management and certain logistics assets of Pathfinder Transportation.)
- Matrix Capital Markets Group, a leading, independent investment bank, announced that the firm advised on a significant number of deals. The following is a summary of the deals Matrix advised on in 2021:
- Penta Operating, LLC d/b/a Jack’s Convenience Stores on the sale of eight petroleum marketing and convenience retail stores and one Jack’s Lube & Wash oil change and car wash location to an affiliate of Monfort Companies.
- Haywood Oil Company, Inc. d/b/a Peak Energy on the sale of its convenience retail, petroleum marketing, and wholesale fuels business to Majors Management, LLC.
- Sale of the assets of Slidell Oil Company, LLC to Circle K Stores Inc.
- Southern Counties Oil Co., L.P. d/b/a SC Fuels on its sale to Pilot Company.
- Successful closing on the sale of the assets of Rusher Oil Company and Rushco Food Stores, Inc. to Sampson-Bladen Oil Co., Inc. and its affiliates.
- J. Pope & Son, Inc. d/b/a Handy Mart on the sale of its 36-petroleum marketing and convenience retail stores to GPM Investments, LLC, a wholly owned subsidiary of ARKO Corp.
- Jacksons Food Stores, Inc. on the acquisition of 62 Speedway and 7-Eleven convenience stores with fuels in California, Arizona and Nevada from 7-Eleven, Inc.
- Mercury Fuel Service, Inc. on the sale of the Company’s 20 petroleum marketing and convenience retail stores and fuels wholesale business.
- Circle K Stores Inc. on the sale of forty-eight petroleum marketing and convenience retail stores to Casey’s General Stores, Inc.
- Toms Sierra Company, Inc. on the sale of thirteen of the Company’s sixteen petroleum marketing and convenience retail stores to an undisclosed buyer.
- R.M. Parks, Inc. on the sale of its U.S. wholesale petroleum distribution assets to PacWest Energy, LLC, a joint venture
While there were a number of other challenges and notable events that shaped the lubricants business in 2021, there will likely be more to come in 2022 and beyond. But as the last few years have shown, the industry is resilient and has learned a great deal by what it has been through.