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The lubricant additive industry has spent the past few years battling supply chain disruptions and raw material shortages, but things are returning to normal, enabling suppliers to focus on new formulations to meet changing customer demands and upcoming OEM requirements.
“The additive companies have all gone through a bizarre period of upset surrounding the supply chain and the catastrophic events surrounding winter storm Uri and even a flash flood situation here in Illinois. It has just been a challenging couple of years,” said Jim Carroll, executive vice president of operations for Schaeffer Manufacturing.
Because of the raw material shortage, many companies have focused on testing alternatives. “That ate up all of our R&D time,” Carroll said. “I’m assuming the additive companies had that same issue, and they were more concerned with the management of change as opposed to developing new products.”
Craig Lundell, senior vice president of supplier and market development for Sea-Land Chemical Co., said it is exciting to have chemists back in the lab focusing on new products after more than two years of difficulties. “When we left off, they were trying to eliminate chlorine, limit biocides and create concentrates to ship less water,” he said. “Then nothing happened except trying to source raw materials.”
Alan Christodaro, president of Monroe Fluid Technology, said he is seeing representatives return to the field. “We’re starting to get visits on additive suppliers we haven’t seen for a year or two, but we tried to instill in everyone that it is our job to think of the innovations we bring to the industry and how we can be proactive and not reactive,” he said.
New OEM Standards
Gavin Duckworth, co-founder and president of Novel Reliable Technologies, a manufacturer of lubricant, grease, metalworking and specialty additives, said demands placed on lubricants are constantly changing. Longer drain intervals and more extreme temperature and pressure requirements are becoming the norm “due to a combination of factors, including the push for improved efficiency and reduced downtime, as well as advances in equipment technology,” he said.
However, the most significant changes in the additive space will come in the next two to three years, when new passenger car motor oil (PCMO) and heavy-duty specifications are released. “Additive companies are putting a lot of resources toward developing products to meet these new specifications,” said Barbara Kudis, president of Allegheny Petroleum Products.
The White House announced new standards for vehicle emissions that are higher than before, and that will prompt “the push from manufacturers” to meet those standards, Christodaro said. The next phase of Environmental Protection Agency (EPA) vehicle emission limits, scheduled to take effect in 2025, will increase pressure on the fuel economy performance of new vehicles.
According to Ian Atherton, marketing manager for Afton Chemical, those changes will result in an 8% to 10% improvement in vehicle fuel efficiency to reduce carbon dioxide emissions. “Any positive contribution from the lubricant to help achieve the targets will be welcomed by the OEMs,” Atherton said.
OEMs are looking at many different approaches to improve fuel economy, and future additive technology will not only have to show improvement in a fuel economy test but also demonstrate protection in terms of oxidation, deposit control and wear for engine designs that increase the operational stress on the lubricant in different ways, Atherton explained.
The challenge is that PCMOs and heavy-duty engines all have new standards on the horizon. “GF-7, PC-12, Dexos Gen4 and EPA CAFE standards are all changing in the same time frame,” Carroll said. “I would assume that the R&D focus for most of the additive companies will be looking at that and not developing new additives in other areas.”
Luc Girard, president of Sanjuro Consulting, said it is difficult when additive suppliers are dealing with dueling needs. “For the second time in a row, even though the industry said this never would happen again, we’re trying to do the passenger car and diesel on top of each other. It was hard 10 years ago the first time we made this mistake,” he said. “Since then, people have retired, companies downsized, COVID hit, and there are fewer people to do a double category development.”
Carroll said category changes would take much of the “oxygen out of the room. Everyone will have to reformulate all the engine oil offerings over the next few years, which will be challenging.”
One of the biggest challenges is that additive suppliers don’t know exactly which tests will be needed to prove additives meet OEM demands. Atherton said a sound understanding of the individual tests within each industry specification is essential to developing a competitive performance-additive platform. Afton will conduct vehicle tests both in-house and in controlled external test fleets to ensure that the real-world operation and performance goes way beyond minimum expectations, he said.
Increased Use of EVs
At the same time, the adoption of electric vehicles (EVs) is on the rise, which is also affecting additive needs. “Companies have had to take their different additive packages and change them for people doing EV packaging,” Lundell said. “They’re trying to come up with new fluids for EV, but the approach right now has been to adapt it until we come up with our own fluids.”
EVs have fewer gears, which creates higher sheer rates. “You need more robust fluids to help the transmissions work properly so they don’t get hung up and stick,” Lundell said, adding that the vehicles will also require different coolants for cooling the batteries. “That is supposed to be filled for life, but if the car is involved in a collision, there could be a leak or a need to replace.”
Girard said there is an emergent belief that there will be dielectric coolants, which can conduct heat without conducting electricity. “There is going to be a whole new family of products,” he said.
Hybrids, which have a small motor, are likely to use a low-viscosity engine oil. “The 0W-8 and 0W-12 have a very small market. It is possible that if we go to hybrids, that market will evolve,” Girard said.
While increased EV adoption would decrease demand for PCMO, metalworking fluids will remain in demand. “The good thing is that [in] every vehicle, whether it is using diesel or non-diesel, there are still parts that are machine formed,” Christodaro said.
Indeed, ILMA’s exclusive EV study found that demand for metalworking fluids will increase over the next five to 10 years before it begins to decline. Impact on Overall Needs Other applications for lube additives are also seeing changing needs. With energy-extraction equipment, such as wind turbines and earth-driven energy equipment, the demands placed on lubricants are significant.
“This equipment is pushing metallurgy demands beyond anything we’ve seen in the past,” Duckworth said. “These applications require lubricants that can perform under extreme pressures and temperatures, often in harsh and contaminated environments.”
Small equipment also requires additives that perform well in extreme temperature conditions. “This is because smaller equipment typically has less thermal dispersion, which means that temperatures can rise rapidly and reach higher levels than in larger equipment,” Duckworth said.
To meet these demands, lubricant manufacturers have developed new formulations that can withstand various temperatures and pressures. Duckworth said there is a growing interest in alternative and bio-based lubricant products.
Driven by government regulations and consumer demand, the lubricant industry is trending toward more sustainable and environmentally friendly products. The industry is focusing on developing robust additive chemistries that can meet the needs of both alternative and petroleum-based lubricants, he said.
Ongoing Concerns
Although supply appears to be stabilizing, some products remain a concern. Lundell said the supply of isostearic acid, which is used in aluminum can making, has been tight for 20 years, leaving companies to look for alternatives.
Lubricant manufacturers across the board are watching the availability of phosphorous, Carroll explained: “There is a limited amount of mining in the U.S., and a lot comes from China. China is really a wild card on how they handle their exports.”
Yellow metal corrosion inhibitors are made in China and have high tariffs, Lundell said. Plus, the industry has been looking at chlorinated paraffin replacements since the 1980s, but in many cases there isn’t anything that works as well at the same price structure. “As you take chlorine out, you don’t get the same lubricity,” he said.
The shift toward a more synthetic lubricants market has increased demand for the precursors that are used in their production. In turn, that has put pressure on the supply of some raw materials also used in other industries, such as pharmaceuticals. “This can lead to price increases and potential shortages of these precursors, affecting the production and supply of synthetic lubricants,” Duckworth said.
Duckworth said the reduced number of refiners is an ongoing concern, as it affects the supply of additives and other raw materials used in the lubricant industry. “Anytime there is an outage or incident in a refinery, it disrupts the supply chain and affects the availability of these raw materials,” he said, adding that lubricant blenders are becoming more centralized due to mergers.
“Mergers of blending sites and centralizing of purchasing sometimes takes the specialty out of the market and simply pushes lubricant development to economics,” he said. “That can slow innovation and affect the market and development of additive companies.”
To mitigate risk, the lubricant industry needs to diversify its sources of raw materials and build strategic partnerships with suppliers, Duckworth said. “Additionally, companies can invest in research and development to find alternative sources of raw materials or develop new additives that are less reliant on these precursors,” he said.
Christodaro said he has seen new suppliers coming into the market, especially with the push for sustainability. “We are seeing other people popping up and adding different types of bases — not just oil but others we haven’t looked at before — some of the gas-to-liquids and esters,” he said.
Supply and Demand
The challenge now is trying to figure out what the market is doing. “This year we’re on a better path, but we don’t have a set direction,” Lundell said.
While supply appears to be stable, demand in the additive market has been slack or down, and many companies, including Schaeffer Manufacturing, have large inventories they are working to draw down. As a result, it is hard to know the actual state of the industry. “Because demand is slow, I don’t know that we’re out of it. This could be the eye of the storm,” Carroll said. “If demand gets to pre-COVID levels, is there enough raw material in the system to support it? I don’t think anybody knows the answer to that question.”
Kudis noted that the PCMO market segment is down. “We believe that some of the current decline in the PCMO segment is due to inflation,” she said, adding that people are not driving as much, which is extending oil drain intervals.
Base oil prices have been falling steadily because demand is off, but additive pricing has not fallen at the same rate. “It is in the same place it has been for several months,” Carroll said, adding that additive pricing typically lags base oil pricing by about six months.
However, some suppliers are open to negotiating on price. “I don’t think they’re as busy as they want to be, so you can shop around a little bit,” Christodaro said. Lundell said customers want to return to 2019 price levels, but inflation and higher labor and fuel costs can make that difficult.
Until recently, announced additive price increases were not very common and were expected maybe every year or two, Kudis said. However, since 2017, additive companies have announced 13 price increases. “The last announced additive price increase prior to 2017 was in 2014,” she said. “It has been a major challenge to pass increases through to the customers because they resist the higher prices.”
Kudis said it seems as if additive prices are not coming down on a wholesale basis. Rather, the additive companies are selectively targeting specific areas of business when evaluating decreases.
A Look Ahead
Although most people in the industry are ready to move forward, there are several issues that could delay progress. With hurricane season coming soon, “one well-placed hurricane between Mobile and Corpus Christi could shut us all down again,” Carroll said.
Suppliers also have to meet sourcing requirements dictated by law. Under the U.S. Customs and Border Protection’s Uyghur Forced Labor Prevention Act, entry packets must contain certain information to overcome a rebuttable presumption that products made in China used forced labor.
“You are seeing that on contracts, you have to sign off you’re not using forced labor or buying from anyone who uses it,” Lundell said.
Duckworth said friction modification in all forms will continue to grow. “Countries where the middle class will grow over the next decade will drive some of the organic growth,” he said, adding that the speed of our world today and interlaced world economies mean that the lubricant market will shift at rates never seen before. “Therefore, it is crucial for companies in the lubricant industry to be agile and able to adapt to changes quickly to stay ahead of the curve.”