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Unfortunately - we've had to adjust our prices to higher raw material costs.
Synthetic base stocks are not derived from crude oil so although gasoline prices have dropped, synthetic base oils have actually increased due to a supply shortage. The supply shortage is due to damage imposed on a major synthetic base oil manufacturing facility as a result of Hurricane Ike in September. This plant shutdown has created a supply shortage which has driven prices up.
The price of natural gas is also high due to the severe winter cold - natural gas is the building block for the feedstock used to make LAO's or the beginning of the synthetic base oils.
And now that the economy has slowed down, the plants that would normally have excess chemical feedstock's to be made into synthetic base stocks are in many instances shutting down - which is perpetuating the supply problem. Mobil 1 was actually on allocation - I even saw a sign up at a Wal-Mart with bare shelves....
In addition to the base oils going up in huge percentage - the additive suppliers doubled their prices in a very short period last year. We are doing everything we can to maintain pricing - and are hoping that supply issues stabilize which will allow some roll back in pricing - but I wouldn't expect anything huge at this point - it is frustrating from this side as well.
I've been with RP for 17 years and we would typically adjust prices once per 2-3 year interval.
However, last year was unique - due to the rapid increase in the price of crude oil to $140 / barrel.
Normally, the crude oil pricing has very little impact on our products due to being a man-made synthetic using components that are derived from natural gas.
But what happened last year with the increase in crude oil, the performance automotive additives manufacturer's doubled the cost in 30-60 days.
We held our pricing from 2007 through the first half of 2008 thinking that it was a blip and would reverse it's course. We should have had a price increase 3-4 months sooner but actually held pricing although we had had as many as 10-12 price increases from our suppliers in the time.
Then, in September of last year (I'm guessing you are not located in the Gulf Coast area), Hurricane Ike damaged and put out of commission the largest US based synthetic lubricant plant in Beaumont, TX operated by EOM. Mobil put it's automotive and industrial clients on allocation - even Wal-Mart could not get Mobil 1.
Royal Purple was not affected and actually picked up market share but it put the synthetic base oils in short supply - and basic economics 101 tells you high demand and short supply increases prices.
That plant is now back in operation after 3 months of total shutdown but the current worldwide economic recession -particularly in the automotive industry, has resulted in plant shutdowns and partial operation of the chemical plants where the 'feedstock' for the synthetic base oils would come from - so now the synthetic base oil prices are maintaining a high price due to a shortage of raw material to make the finished synthetic base stocks.
All of the majors have adjusted prices on conventional products reflecting the lower crude price back have excluded roll backs in synthetics in most cases.
Here is a link describing the base oils used in motor oils
December 13, 2008
Global PAO Demand Growing Beyond Production Capacity
Global demand for polyalphaolefins (PAO) - which competes with Group III base oils - is growing well beyond production capacity, a major PAO producer said at the recent ICIS Pan American Base Oils Conference.
PAOs are made from ethylene cracker feedstock such as ethane, propane, butane and natural gas liquids. Once cracked, the materials make normal alpha olefins (NAO), the feedstock for PAOs. PAOs are used in motor oils and often compete with Group III base oils.
Following the introduction of Group III base oils in the mid to late 1990s, PAO operating rates declined to around 60%, resulting in some shutdowns in the industry, said Jim Herman, marketing manager for Chevron Phillips Chemical. Demand for PAO returned in the late 1990s as the market began to grow, and downstream users tested formulas and, in some cases, preferred PAOs over the Group III base oils.
"Estimates are now that the industry is operating at levels above 90%, and historically high rates will be necessary in the coming years. Capacity has been fairly flat since 2005, but demand has grown an average of 3% per year, causing operating rates to soar to 93% and higher since 2005. To satisfy unconstrained demand, operating rates from 2009 will have to exceed 100%," Herman said.
Another competing product is the gas-to-liquid (GTL) derived base oils, expected to come on line in the Middle East. However, a number of these projects have been delayed or cancelled, Herman said. "The effect on the GTL base oils to PAOs remains to be seen."
Global PAO producers include ExxonMobil, Chevron Phillips Chemical, INEOS, Chemtura, Neste and Russia's Nizhnekamskneftekhim.
December 13, 2008
Price Decreases Continue on Finished Lubes
On December 8, ExxonMobil announced that the majority of ExxonMobil branded and unbranded conventional, mineral-based, lubricants and greases will decrease in price by 48 cents per gallon, effective that same date. Different price treatment may apply to various products. This price action excludes all synthetic products. The new prices will be in effect for all orders scheduled to ship on or after December 8th, 2008. This includes pending orders (ordered, but not yet shipped) placed prior to December 8th, 2008.
Also, on December 8, Chevron announced a general posted price decrease on lubes by up to 8% for bulk and packaged products to be effective January 12, 2009. In addition, Chevron stated that from December 8, 2008 through January 9, 2009 a price adjustment, via a manual credit, in the same amount of the posted price decrease will be implemented to allow for immediate benefit of this price decrease. Chevron stated that the price decrease will be handled as follows:
Immediate price adjustment implementation: Current orders that have not shipped as of December 8, 2008 and through January 9, 2009 will receive a product credit equal to the amount of the January 12, 2009 posted price decrease. The credit amount will be reimbursed to customer accounts on or about January 31, 2009
During the price adjustment period, from December 8, 2008 through January 9, 2009, Chevron reserves the right to exclude from the above credit computation any order that exceeds 110% of the average monthly volume between June 2008 and August 2008 inclusive. All new established pricing will then become effective on January 12, 2009. Product lines excluded from this decrease include greases, food grade oils, synthetic oils currently under allocation, coolants and fuel additives.
Castrol automotive announced last week a decrease on posted prices of $0.44 per gallon on conventional lubricants and $0.45 per gallon on synthetic lubricants. This decrease applies only to product purchased in bulk, tote, drum, and kegs. A price decrease of $0.44 a gallon will reportedly go into effect on January 5, 2009. LubriTec was told by Jennifer Campbell Marketing Manager Castrol Industrial North America that this price decrease is only for Castrol's automotive group not Castrol Industrial North America.
North American Lubricants also announced a price reduction of $0.50 to $0.70 per gallon on most of its finished lubricants for orders placed on or after December 3. NAL said the reduction was made possible by the improvement in U.S. base oil production and inventories, which had struggled to return to normal levels after experiencing substantial supply interruptions caused by Hurricanes Gustav and Ike.
It's rather frustrating.
It's not of RP's doing - we just recently had a price decrease at the beginning of March - roughly 4-5%.
Believe me - RP is doing everything to make sure that we are as efficient as we can be. we do not have large marketing costs rolled into the product - choosing instead to use this to put increased performance technology into our products so that we consistently out perform even the largest oil producer in the world, EOM (Mobil 1's parent company).
We do this with our advanced additive technology Synerlec - which gives added power, torque, fuel efficiency and longer life to components due to the 3-4 times greater oil film strength than even quality products like M1, Castrol, Shell, Valvoline, etc.
Unfortunately, our product is not a 'me too' type product such as a generic item - we are at the leading edge of the technology - hence the reason for the increased performance above that of the major oil companies products. It's not just a duplicate of what everyone else offers.
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