Marine lubricants in short supply

The French marine lubricants supplier, Total Lubmarine, maintains that the marine lubricants industry is facing a new and deepening supply crisis compounded by a period of unprecedented raw material price increases. It claims that an unexpected maintenance shutdown at the Chevron Oronite plant in Singapore, and Chevron Oronite’s subsequent declaration of force majeure, has again tipped the industry into crisis, creating a serious situation which will affect deliveries of marine lubricants – cylinder oils in particular – in ports in the Asia Pacific region.

Lubmarine says the marine lubricants industry has been walking a supply tightrope since the end of 2004. The full gravity of the situation was brought out into the open when a fire at the Chevron Oronite plant caused a shortage of cylinder oil additives in Singapore, leading many suppliers to introduce product rationing. Since then, a series of other additive company plant shutdowns has exacerbated the problem at a time when demand for products is booming. Most major marine lubricants companies have been put on allocation by their suppliers, creating an increasingly difficult supply position. And Lubmarine says the very tight supply position and regular product shortages are likely to remain for the foreseeable future.

Andrew Knox, Head of Marketing at Lubmarine, says, “The marine lubricants industry has reached a critical point in its development, with costs on the increase across all areas of production, and with capacity at a premium.”

Knox explains that a number of factors have combined to produce supply shortages. These include long-term changes in supply and demand balances, lack of a capacity cushion, low inventory levels, and base oil and additive plant shutdowns. Among the influences affecting the supply/demand balance, Knox cites an increase in demand from China, where the economy continues to grow at double-digit rates, compounded by rapid growth demand from both the marine and power generation industries.

The industry is also facing an explosion in the price of raw materials, the key components in the manufacture of marine lubricants having all increased at record rates. The price of heavy base oils – and, in particular, bright stocks – has increased by over 50% in the past twelve months, while many of the additive components have increased by 40%-plus plus. These increases have been compounded by hikes in freight rates, fuel costs and, in some areas such as Europe, exchange rate fluctuations.

With crude oil regularly breaking the $65 mark, and deepening shortages of both heavy base oils and additives, these increases can be expected to carry on escalating for some months.

Knox says, “The combination of reduced supply and increased demand has produced a situation in which prices are likely to continue to rise, and supply to become more difficult. The traditional, overall structure of the oil industries makes it difficult to react. But it is as well to remember that lean supply chains can turn from just-in-time supply to just-not-in-time. Those shipping companies which do not have long-term contracts with a supplier, and which have relied on spot supplies, have seen prices increase rapidly. In some cases, they have found it almost impossible to find supply. The advantage of long-term supply contracts has never been so important.

“Recently, the market has become short in product, and price increases and increased raw material price volatility mean that the previous practice of giving fixed or semi-fixed price deals no longer makes any economic sense. Predicting the long-term evolution of the oil market is becoming even more impossible.

“For many years, shipowners have profited from an oversupplied market, and have been able to buy lubricants at highly competitive prices, often for extended periods. But increased pricing volatility, and continued cost increases and supply shortages, make these practices a thing of the past.

“The shipping industry, not before time, must wake up to the concept of buying lubricants on issues other than price alone. Shipowners should look to secure long-term supply contracts which guarantee them a high-quality supply service in major ports. The key purchase decision should be on product quality and supply availability. And the role of lubricants in keeping the modern super-powerful ship’s engine running should not be underestimated.”