SCUP Report

Table of Contents

Abstract

Lubricating oil additives (LOAs) are used to enhance the performance of lubricants and functional fluids. Each additive is selected for its ability to perform one or more specific functions in combination with other additives. Selected additives are formulated into packages for use with a specific lubricant base stock and for a specified end-use application. The largest end use is in automotive engine crankcase lubricants. Other automotive applications include hydraulic fluids and gear oils. In addition, many industrial lubricants and metalworking oils also contain LOAs. The major functional additive types are dispersants, detergents, oxidation inhibitors, antiwear agents, extreme-pressure (EP) additives and viscosity index (VI) improvers.

This report defines the business as including only the sales of LOAs to lubricant manufacturers. Therefore, sales of individual additives to LOA suppliers (whether internal transfers, trade among LOA suppliers or merchant purchases) are classified as raw material acquisitions and not as sales of LOAs. Excluding such transactions avoids double-counting.

A modest average annual increase in the volume of LOAs between 2004 and 2007 was observed, while a considerably more dramatic average annual increase in their unit value took place over the same period. However, the increases in value (on a dollar basis) in Western Europe and Japan were due mostly to a declining dollar exchange value relative to the euro and yen. The growth in value in North America was due largely to higher prices.

Price increases in recent years have largely reflected higher raw material prices, tied to tight supplies of some of these materials and the general impact of higher crude oil prices. The revenues of the industry increased steadily during 2004–2007. In 2007 EBITDAs in the range of 11–16% were achieved. This was due to the ability to realize net price increases, coupled with increasing capacity utilization and the growing use of more expensive additives to meet new emission standards. A major restructuring of the excess capacity in the LOA industry during 2002–2006 also benefited the LOA suppliers.

The LOA business is dominated by four multinational companies, some of which are or were linked to the major oil companies. They are Chevron Oronite Company LLC (owned by Chevron Corp.), Afton Chemical Corporation, The Lubrizol Corporation and Infineum (a joint venture of ExxonMobil and Shell). These four mainline suppliers offer packages of formulated components, most of which they captively manufacture. Three of these large suppliers are headquartered in the United States, where a large share of the manufacturing is also conducted. Thus, the United States is a large net exporter of LOAs to other world areas. Japan in contrast imports most of its products.

The best growth opportunities are in the rapidly growing Asia Pacific market—especially China and India. Based on improvements in political and economic stability, growth should also be better in Central and Eastern Europe, including the countries of the former USSR. Brazil is leading the growth in South America. Companies that are well-established in these locations are in the strongest position to take advantage of these opportunities. Growth rates for the LOA business in the developed world, where the market is highly mature, will remain minimal. The most important considerations in the most economically developed regions are the changing technology in the end-use industries (e.g., automotive engine design), government regulations (e.g., lower emissions and lower fuel consumption) and the need to provide the attributes that the end-use industries or lubricant manufacturers wish to promote in their marketing strategies (e.g., longer drain intervals and lower maintenance costs).