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December 24, 2014

Volume 17 Issue 52

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Recycling Consultant Urges 'Reset' on Used Oil

FAJARDO, Puerto Rico–With feedstock costs rising and demand for used oil-derived products sinking, the used oil market is upside down, said recycling industry consultant Roy Schumacher. At NORA's annual event last month, he urged players to rethink and revise used oil acquisition costs.

After several presentations detailed the grim realities of the United States’ current used oil market at the Association of Responsible Recyclers’ annual trade show and conference here in November, Schumacher – a former collector for Thermo Fluids who now heads Schumacher Consulting in Phoenix, Ariz. – told the conference that it’s time to “reset the market.”

“I can tell you with absolute confidence that used motor oil prices are too high,” he said. “[API] Group II base oil prices are down 40 percent, with no reversal in sight. Ironically, the cost of used motor oil has gone up 25 to 35 percent. It’s ludicrous.”

When collecting from quick lubes, Schumacher noted, the dilemma is even starker. “In 2010, the average cost of collecting used motor oil from a quick lube was 95 cents per gallon. By 2013, it was $1.45 – a 52 percent increase at the same time that every rerefined product price has gone down.

“We like the quick lube industry, they are our customers. However, how are they able to charge only $19 or $29 per oil change for decades? Because they depend on us,” Schumacher said, adding that he believes used oil collectors are “subsidizing” the quick lube industry.

“My research shows that the average cost of used oil in 2013 and 2014 was $1 per gallon,” he continued. “Assuming you collect a billion gallons a year in the United States, that’s one billion dollars a year going to the generator.”

As grim as the situation appears to be, it presents a huge possibility for collectors, Schumacher asserted. “Here’s the good news: that cost is our opportunity. We choose what that cost is. Imagine if we reset that to zero – it’s a way out.”

Schumacher noted that in almost all other industries, increased production cost ends up being passed on to the consumer. “How about that billion dollars gets passed on to the millions of customers at quick lube changes every year – and we don’t have that cost every year? Imagine a world like that.”

For a paradigm shift in the used oil market, collectors must take action, Schumacher said. “We need to make some big decisions. We need to decide to pay our customers fair market value for used motor oil. No more, and no less.”

To do so, players need to analyze the market, he explained, and need to have real conversations with their customers. “It’s not about making small changes, such as ‘let’s drop the price of used oil by 10 cents’ –that’s not going to get the job done.” Instead, collectors need to find a way to establish long-term strategies with their customers.

“Let’s get away from one-way conversations such as, ‘how much are you going to give me?' or 'How much do I have to pay?’ Instead, have a conversation. Tell [your customers] the story of where their oil goes –educate them about rerefining or whatever market you’re selling into.”

Schumacher concluded by urging the conference to take control of feedstock acquisition costs through a used motor oil pricing index. “Let’s find an index that we can count on, and sell on an index-based system.”