Year-in-Review 2024
A Look Back at 2024 and Ahead to 2025
Petroleum Trends International, Inc. – Publishers of JobbersWorld
December 30, 2024
Despite optimism that US lubricant demand would recover in 2024 after a challenging 2023, the anticipated rebound did not materialize. Instead, demand continued to fall, forcing lubricant manufacturers and distributors to confront many challenges, such as increased competition, falling prices, and rising costs. This confluence of factors has significantly strained profitability, complicating companies’ ability to maintain healthy margins.
In this highly competitive landscape, lubricant prices have fallen to a point that many marketers consider to be close to the lowest viable threshold.
During the year, there was a concerted effort to strike a balance between the necessity of remaining competitive and the requirement for profitability. Some stakeholders expressed that this situation compelled them to conduct a more comprehensive evaluation of operational expenses, especially concerning staffing redundancies. In particular circumstances, especially in cases where acquisitions created role redundancies, choices were made to unify responsibilities, culminating in the severance of high-salaried managerial staff. Furthermore, the lubricant industry is witnessing heightened efforts from producers and distributors to streamline their operations. This includes consolidating facilities, renegotiating existing contracts, acquiring beneficial spot market agreements for base oils, leveraging technology to boost operational efficiencies, and implementing a range of cost-reduction strategies.
Lubricant Demand
Based on Petroleum Trends International (PTI) data, a preliminary assessment of lubricant demand in 2024 reveals considerable fluctuations over the year, characterized by a few monthly peaks and numerous troughs. The net of these changes suggests a decline in lubricant demand of close to 6% relative to 2023. The most significant drop in demand was noted in the consumer automotive segment, with preliminary PTI data indicating that demand for consumer automotive lubricants decreased by close to 9% in 2024.
In addition to inflation and persistent macroeconomic factors affecting demand, various systemic influences are at play, particularly in the consumer automotive sector.
Industry stakeholders generally accept that the United States consumer automotive lubricants market is in the declining stage of its life cycle. The decline in demand can be linked to various factors, such as the continuing efforts to lengthen the time between oil changes, the swift expansion of ridesharing services, the increasing popularity of electric and hybrid vehicles, a considerable portion of the workforce working remotely, and changes in driving behaviors across different demographics.
Pricing
The decline in demand has led to a roughly 13% drop in lubricant prices in 2024, with variations depending on the product category.
The most pronounced price reductions are evident in the synthetic and synthetic blend PCEO category, where competition has been notably intense. The substantial drop in synthetic blend prices can also be attributed to a significant decline in demand as original equipment manufacturers (OEMs) increasingly advocate for synthetic oils. Historically, blends served as the primary choice in the PCMO market, but their popularity is waning rapidly.
Although this may not be relevant for every marketer, there were four distinct price reductions in finished lubricants in 2024. While the specific timing and amounts differ among companies, two price decreases occurred in the second quarter, one in the third quarter, and another in the fourth quarter. Unlike the more overt announcements of price hikes, however, these reductions were executed with greater subtlety.
The intense rivalry in the market exacerbated the pressure to reduce prices, putting some businesses in jeopardy of entering a perilous cycle (a death spiral) of continuous price cuts that erode profits to unsustainable levels. Numerous distributors expressed concern that we are nearing this critical point in 2024.
While diminished demand is a key factor contributing to the heightened competition and subsequent price reductions in lubricants, the ongoing growth of private-label products further exerts downward pressure on prices. However, lubricant marketers note that lower prices did not spur demand for PCEO.
In 2024, private-label lubricants experienced continued volume growth as consumers, particularly in the installed sector for PCEO, increasingly sought lower-price alternatives in response to persistent inflationary challenges.
RelaDyne stands out as a notable example of the success of private labels within the installed sector. In November 2024, RelaDyne announced a long-term partnership to supply its private label brand, DuraMAX, to Full Speed Automotive lubricants nationwide. Full Speed Automotive is recognized as the largest independent franchisor of automotive preventive maintenance, servicing 5.6 million customers each year across a thousand centers in the U.S. and Mexico, including well-known brands like Grease Monkey®, SpeeDee Oil Change & Auto Service®, and Kwik Kar®. Additionally, in March 2024, RelaDyne announced that it extended its multi-year agreement to supply Driven Brands with DuraMAX and Drydene oils—both of which are RelaDyne products—to the Take 5 Oil Change network. This network encompasses more than 1,000 locations managed by the company and its franchisees throughout the United States and Canada. Earlier in the year, RelaDyne announced that its national automotive brand, DuraMAX, will supply lubricants and ancillary products to Sun Auto Tire & Service’s network of over 475 company-operated locations across the United States in a multi-year partnership.
In 2024, distributors also encountered heightened difficulties as buyers increasingly emphasized terms in their purchasing decisions. An increasing number of buyers began to deprioritize product quality and performance, opting instead to solicit requests for quotes (RFQs) for PCEOs that met specific performance criteria from various suppliers, with their purchasing decisions largely driven by price and terms. This change in buying behavior has made terms a vital component of sales. Although this trend may offer advantages to customers, the extended payment terms placed considerable pressure on distributors’ cash flow, liquidity, and overall profitability.
The attention given to pricing and terms in 2024 underscores a critical issue for distributors: the increasing tendency of customers to adopt a brand-agnostic approach, prioritizing price over brand loyalty. This trend had already gained traction prior to the COVID-19 pandemic, but disruptions in the supply chain, characterized by significant allocations and stock shortages during that time, expedited its growth. With major brands’ premium products often unavailable, buyers turned to alternative options, frequently private labels. Finding that these alternatives were not only accessible but also more affordable than the major brands contributed to the rise of brand agnosticism and diminished the perceived value of established brands.
Distributors note that while brand agnosticism is most pronounced in the PCEO category, it is increasingly infiltrating the commercial and industrial markets. Although customers still recognize value in brands, their significance as a differentiating factor is eroding. Consequently, business transactions are becoming more focused on price, fostering a mentality centered around “what’s your price?”
Cost
The challenges posed by decreasing demand and falling prices have been exacerbated by significant cost increases faced by blenders and marketers. Key contributors to this situation include inflation, rising wages, escalating repair and maintenance expenses, substantial increases in insurance premiums, and the overall uptick in the prices of various inputs.
Notably, base oil producers announced two significant price increases within the year’s first six months. The first occurred from late February to March, with prices rising between 15 to 20 cents a gallon. A subsequent came in April when producers announced an increase of 30 to 40 cents a gallon, primarily affecting API Group II/II+. Additionally, additives suppliers implemented selective price hikes of 8 to 10% about a month after the base oil adjustments.
Historically, rising costs of base oils and additives prompt price increases across the lubricants industry. However, this time the scenario was notably different. Only two major oil companies and a few independent blenders opted to raise their prices in response to the changes in base oil and additives costs. Many others chose not to increase prices, citing challenging market conditions marked by weak demand and intensified competition, with many absorbing the increases to maintain their market position against lower-priced competitors.
The persistent weakness in lubricant demand in the US resulted in an oversupply, both locally and globally. The oversupply and heightened competition in the base oil spot market created significant downward pressure on prices. As a result, multiple announcements regarding decreases in base oil prices were made during the second half of 2024.
Nevertheless, finished lubricant margins remain constrained due to inflationary pressures affecting other cost components.
Focusing specifically on labor costs, discussions with lubricant manufacturers and distributors reveal that inflation-adjusted hourly wages have surged by nearly 50% since the onset of the Covid pandemic. This increase is largely due to a shortage of qualified workers, intensified competition for skilled labor, and inflationary pressures. Additionally, insurance costs related to lubricant manufacturing and distribution have seen a sharp rise. Premiums for general liability, property, commercial auto coverage, and worker’s compensation are all rising. Distributors report that property and general liability insurance alone have increased by 30 to 40% in recent years, further squeezing profit margins.
Mergers & Acquisitions
The influence of private equity in the lubricants market continues to be substantial, as it effectively deploys large capital reserves to pursue attractive investment opportunities. At the same time, smaller firms are increasingly opting for mergers and acquisitions to enhance their competitive edge.
In 2024, however, merger and acquisition activity in the lubricants industry softened, driven by market uncertainties and other economic factors that hinder deal-making. The combination of high interest rates and sustained inflation has created tighter financing conditions, making it more difficult for companies to secure the funds required for major transactions.
There was a notable emphasis among private equity and other acquirers be more selective and carefully target specific companies within the available deal flow in 2024. Interest in distressed, underperforming, and smaller entities diminished significantly. Instead, prominent acquirers in the lubricant industry focused on firms that exhibit brand synergies, solid financial positions, and opportunities for expanding market presence in new territories and lubricant products, sectors, and services. Additionally, there is a heightened emphasis on talent retention and the expected time and costs related to integrating acquisitions when evaluating potential targets.
Notable acquisitions in the lubricant space include:
Looking Forward to 2025
As we approach 2025, lubricant marketers are cautiously optimistic about potential economic recovery, believing that the new administration will cultivate a more favorable business environment. They project a growth in lubricant demand in the U.S. of 2 to 3% for 2025. However, this optimism is moderated by concerns over geopolitical tensions, alterations in trade policies, and various structural changes impacting supply and resource availability.
While there are concerns that demand in the consumer automotive sector may decline by approximately 3 to 4%, the industrial sector is expected to see a positive trend, with growth anticipated at 2 to 3%. A projected decline in interest rates is anticipated to stimulate consumer expenditure and invigorate manufacturing, though the complete impact is expected to unfold gradually over the course of 2025.
While demand for HDEO typically aligns with industrial business trends, marketers indicate that end users’ ongoing initiatives to extend oil drain intervals will continue to hinder growth in 2025. Consequently, demand for HDEO is expected to grow by 1 to 2% in the coming year.
Marketers also expect an uptick in mergers and acquisitions in 2025, although they acknowledge that the pace of acquisitions has slowed due to a diminishing number of attractive investment opportunities. The anticipated decrease in interest rates may also encourage initial public offerings among select private equity investments in the lubricants business.
Lubricant marketers will likely pursue innovative strategies for business expansion in 2025. They may focus more on vertical integration opportunities rather than the conventional horizontal buy, build, sell approach. This shift particularly appeals to some, given the strong supply relationships that certain companies, and their channel partners, maintain with major industry players.
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