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December 25, 2019

Volume 3 Issue 8

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GF-6, 303 Fluids Headlined 2019

From the long-awaited adoption of ILSAC GF-6 to a crackdown on 303 hydraulic fluids to mergers and acquisitions, 2019 was a busy year in the Americas for events affecting the framework of the lubes industry.

The auto and oil industries finally formally approved a long-awaited light-duty engine oil specification for North America. Several steps were taken to try to crack down on supply of obsolete tractor hydraulic fluids, and a slew of mergers and acquisitions were announced or completed, shaking up the line-up of players in the industry.

Following are some of the biggest stories of the year for the Americas region.

GF-6 Finally Adopted

At an April Automotive Oil Advisory Panel, stakeholders came to agreement on the final limits for GF-6, North America’s next light-duty engine oil specification from the International Lubricant Standardization and Advisory Committee. That adoption came seven years after work on the standard began and four years later than the original target date, adding fuel to calls to reform the specification development process.

Settling all issues allowed stakeholders to agree on timing for the mandatory waiting period between completion of the technology demonstration period and the introduction of products promoted as being licensed for the specification. It means GF-6 first allowable use is expected to be May 1, 2020. Nine to 12 months later, ILSAC GF-6 will become mandatory for all light-duty engine oils bearing the American Petroleum Institute’s starburst trademark.

303 Hydraulic Fluids

There were several breakthroughs this year in long simmering efforts to regulate or reduce the supply of obsolete tractor hydraulic oils – specifically those marketed as 303 fluids in reference to a standard that John Deere developed in the 1960s but which is no longer administered and which has long been considered out of date. In April, aa preliminary settlement was reached providing partial reimbursement to customers who purchased one brand of 303 tractor hydraulic fluid in the state since July 20, 2013. Later in the year, a preliminary settlement was reached in a second class action lawsuit in Missouri against a lubricant manufacturer and retail chain.

In July, the U.S. National Conference on Weights and Measures adopted labeling requirements aimed at preventing misrepresentation of 303 fluids and equipment failure. The requirements, incorporated into NIST Handbook 130, mandates that tractor hydraulic fluids sold in the United States that do not meet current specifications will need to be clearly labeled as “obsolete” and accompanied by an explanatory warning on their package fronts. They take effect in January.

In August, ASTM International announced it would develop a minimum performance standard for tractor hydraulic fluids. The organization did not give a timeline for the project but invited representatives from tractor manufacturers, lubricant marketers and chemical additive suppliers to participate.

Mergers and Acquisitions

This year saw a significant uptick in the number of mergers and acquisitions of companies in the lubricants industry. Some focused specifically on businesses that supply lubes or ingredients used to make them, while other deals merely caught up such operations.

In March, Tampa-Florida lubricant manufacturer Amalie Oil Co. agreed to purchase the United States business of Pico Rivera, California-based Lubricating Specialties Co., which has three production facilities in California.

In July, Batesville, Indiana-based Hillenbrand announced plans to acquire Milacron Holdings Corp. for $2 billion. Cincinnati, Ohio-based Milacron’s Fluid Technologies segment supplies metalworking and industrial fluids. Germany-based Fuchs Group acquired Fairhaven, Massachusetts-based synthetics lubricants blender Nye Lubricants in October and Canadian lubricants and chemicals process management company Zimmark Inc. in November.

Indorama Ventures acquired Huntsman Corp.’s chemical intermediates and surfactants businesses for $2 billion, including three production facilities in the U.S., the companies announced last week. A number of products included in the acquisition can be used to make lubricants and metalworking fluid additives.

Some base oil plants in Brazil could be changing hands soon as the country’s government announced plans this year to sell its 60 percent stake in eight refineries operated by Petrobras.

Accidents and Disruptions

Flooding along the Missouri and Mississippi rivers forced Midwest lubricant companies to fall back on contingency plans for shipping as railways become submerged, industry insiders said in March. Caused by record rainfall and snowmelt, the floods caused billions of dollars in damage and slowed lubricant shipments because rail cargoes had to either wait for the water to recede or take alternate routes to reach their destinations.

A three-day chemical fire at Intercontinental Terminal Co.’s Deer Park, Texas, terminal in mid-March closed the terminal and the Houston Ship Channel, impacting the traffic of base oil – especially API Group II and III – in and out of other terminals in the area, according to industry sources. The terminal had 231 tanks storing base stocks as well as a variety of other chemicals, fuels and feedstocks. The channel reopened in late April.

U.S. Base Oil Market

There were no significant changes in North America’s base oil refining capacity this year, but the region was impacted by development in other parts of the world. ExxonMobil’s opening of a Group II plant in Rotterdam, Netherlands and the start-up of a number of expansions and new base oil units in China and Singapore all contributed to a growing surplus of supply. In addition, Middle Eastern producers stepped up efforts to export base stocks to North America. Abundant availability of most base oil grades and squeezed margins led to trimmed operating rates at regional base oil units amid ongoing downward price pressure.

Pricing reflected some of the upheaval, too. The year started out with a decrease implemented during the first few days of January on the back of similar initiatives in November and December of 2018. During this period, three different posted price decreases took place on the paraffinic and naphthenic fronts – most likely a record number of revisions in such a short period.

Slightly more positive sentiment was detected among base oil market participants in mid-February as finished lubricant purchases gained traction in preparation for the spring season.

In particular, buying interest for export barrels intensified, with several cargoes moving to India and the United Arab Emirates, likely as a result of a shutdown at a refinery in Yanbu, Saudi Arabia. Demand from Mexico also remained steady in February and March. All these export deals helped the U.S. market to become less oversupplied.

As the weather warmed up, so did the base oil market, with two posted price increase initiatives surfacing between early March and May, both spearheaded by Motiva, and quickly followed by the rest of the paraffinic producers. Several naphthenic price hikes also emerged within the same timeframe. Steadily climbing crude oil values in March and April provided additional support to the increases.

The base stock hikes prompted adjustments for finished lubricants, greases and additives, with major oil companies announcing increases of up to 6 percent, and several smaller blenders lifting prices by around 5 to 8 percent, effective in early May.

In early July, Chevron stepped out with a price increase, which was driven by steeper raw material prices, coupled with a tightening of Group I and II availability. However, the producer announced a decrease in late July, effectively rescinding the previous increase.

In late September, a general market slowdown and softer crude oil numbers appeared to prompt ExxonMobil to rescind a price increase that the company had reportedly announced just days earlier. According to sources, the increase had been triggered by a sudden and short-lived spike in crude oil and feedstock values, following a drone attack on Saudi Arabian oil production facilities.

A seasonal slowdown and mounting inventories prompted producers to grant spot discounts and temporary voluntary allowances into selected accounts in order to stimulate orders throughout the last quarter. These strategic moves enabled suppliers to manage inventory levels and maintain posted prices on a steady course for the remainder of the year.

Gabriela Wheeler contributed to this article.