The True Value of the

Lubricant Additives Business

Compoundings Magazine, March 2002

By Thomas F. Glenn

Petroleum Trends International, Inc.

The lubricant additives business is big, complex, and a key part of the lubricants industry. In addition, it’s a changing business and one that adds significantly more than chemical packages and components to the value chain. It is also a business well positioned to add even greater value in the future. Understanding this value and how it might evolve starts with a look at the position additive suppliers have in the value chain.

 Links in the Chain…

 Lubricant additive suppliers are an integral part of the lubricants value chain. They connect with seven major links in the chain, as shown in Figure 1, and play a key role in defining and refining the functionality of finished lubricants.

 On the buy side of the chain, additive manufacturers purchase base oils to solubilize additives, and dilute them into manageable concentration. Collectively, consumption of base oil by additive manufactuers in the US reached close to 130 million gallons in 2001 and includes both paraffinic and napthenic. In addition to purchasing base oils, additive manufacturers also work collaboratively with base oil manufacturers to optimize performance in new stocks. 

Another link on the buy side of the value chain for additive manufacturers are suppliers basic in  such intermediate chemicals as amines, dodecyl phenol, olefin copolymer, methacrylate, styrene-isoprene, and other raw materials used to manufacture lubricant additives. Although some lubricant additive manufactures are basic in these and other chemistries, the diversity of materials required to manufacture additives necessitates the need for most to purchase some raw materials from other suppliers. In addition to adding value to these materials by milling, reacting, compounding, and packaging for use as lubricant additives, additive manufacturers also add value by leveraging buying power, assuring consistent quality, and by working with raw material suppliers to enhance performance.

 Packaging manufactures represent another buy side link in the value chain. Although a significant quality of additive is shipped in bulk, additives are also sold in 55-gal drums and other containers.  The additive manufacture’s link to packaging material suppliers can also go beyond buying. It sometimes includes interactions regarding issues related to the compatibility of finished lubricants with packaging materials, appearance, and other considerations.

 Another critical link in the value chain is the highly interactive one additive manufactures have with original equipment manufacturers (OEMs), trade associations, engine test laboratories, government agencies and others involved in influencing, implementing and assessing the performance of lubricants. Additive suppliers work collaboratively with these stakeholders to develop specifications and test protocols, assure compliance, establish timetables, provide information, and to address health and safety and other product and application related issues.

 The sell side of the value chain for lubricant additive manufactures includes primarily major oil companies and independent lubricant manufacturers. Taken together, additive packages and components purchases by majors and independent in the US reached and estimated 2 billion pounds value at almost $1.6 billion in 2001. These numbers alone, however, do not speak to the true value of the business or its potential moving forward.

 The true value of the business… 

Rather than competing simply as suppliers of chemicals, lubricant additive manufactures have evolved into a role where they are highly competent, collaborative, and proactive partners with virtually all stakeholders in lubricant value chain. They are expected to work with these stakeholders to develop and meet the continuously changing performance requirements of all finished lubricants. They are also expected to work with customers to develop proprietary formulations, address blending issues, build on market intelligence, position products, solve problems, and handle technical and customer service related issues. As a result, expertise and technology in both product development and additive manufacturing have become the core competency of most lubricant additive manufactures. And for most, these competencies are a requirement of being in the additives business, not an option. This reality, together with the bandwidth additive suppliers have in the value chain, electronic interconnectivity of lubricant industry stake holders, redundancies in the value chain, the industry life cycle, intensity of competition, and others suggest that additive suppliers are well positioned to contribute even more to the lubricant value chain in the future… This will be the subject of the next Top Line column.

Copyright © Petroleum Trends International, Inc. 2002