October 25, 2016
Volume 7 Issue 9
SK Pivots to Finished Lubes
Citing volatility in the base oils market, SK Lubricants, which produces more API Group III than any other company, plans to increase emphasis on growing its finished lubricants business through partnerships and new product development.
The Seoul, South Korea-based subsidiary of SK Group said that its main segment, base oils, has been performing well, but noted that the market has become increasingly volatile. SK plans to increase focus on the more stable finished lubricants marketplace.
“Base oil is certainly our main business, from which we get more than 80 percent of sales,” said Jaesok Rho, head of new business development. “Typically business-to-business, it’s much influenced by market [conditions], and its performance is subject to sharp fluctuations.” The global base oil market has a glut of Group III due to a series of plant openings and expansions in recent years. Some observers say the oversupply could persist for years, and SK officials believe Group III demand and supply may not balance until 2018.
“In contrast, finished products hold more stability as they target and deal with end-users,” Rho said in an interview at SK headquarters last week. “Thus, we are to strike a balance between the base oil sector and the finished lubricants sector.” SK is the forth-largest base oil producer worldwide, but considers its finished lubes business to be “lagging behind,” at 20th-largest.
First on SK’s agenda is adding to its portfolio of around 800 finished products, which is concentrated on passenger car motor oils. SK plans to expand its heavy-duty diesel oil, industrial oil and marine oil product offerings. Rho said the company is also considering introduction of white oils, which are highly refined mineral oils used as blending bases in applications such as pharmaceuticals, cosmetics and personal care products.
SK is also considering mergers and acquisitions in the finished lubricants sector. Although unsuccessful, last year it placed a bid to try to acquire Royal Dutch Shell’s majority stake in Chinese blender Tongyi Lubricants.
“We are always interested in the chances of M&As in China, our core market,” Rho said. “In the discussions of collaborations and partnerships, we are seeing some progress. But now is not the best time to buy lubricant companies as they tend to be overvalued [because profits have been inflated by] low prices of base stock.”
SK is examining potential partners and acquirees based on their size and geographical network as well at the strength of their brand and their product portfolio.
The company also aims to close more factory-fill deals with original equipment manufacturers specifically in Korea, China, Russia, India and Thailand.
SK Lubricants operates finished lubricant sales subsidiaries in Russia, the Netherlands, India, Japan and the United States and manufacturing plants in Korea, China, Indonesia, and Spain.