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Covid-19 and the shortage of raw materials for the lubricant industry

31/03/2021

All lubricant manufacturers are heavily reliant on the timely and full supply and delivery of base oils, additives and chemicals which are crucial to the development of lubricants. The production process itself involves the manufacturers selecting and mixing raw materials and testing them against the specifications shared by the users or developing tailor-made lubricants for various applications in collaboration with OEMs.

It is of course no surprise that the Covid-19 pandemic has led to shortages in the supply of such raw materials and presented the industry with several new challenges, including the lack of availability of these materials in the desired quantity and the dependency on fewer suppliers. The journal Lubes n Greases published an article on 2 March 2021 which provided a general overview of the current base oils market:

“Perhaps more than in other regions, base oil supply in Europe and the Middle East has been severely constrained since the end of 2020. Industry insiders say the flow is unlikely to increase in the first half of this year.”

There are number of factors which have had a direct impact on the lubricant industry:

–           Cargo capacity, especially in aviation/on aircraft, has become limited: Whereas before some cargo was normally carried on passenger flights, it is now being partially transported on ships. As a result, freight rates have increased and sometimes ships do not have the extra capacity to carry cargo of this kind. An increased demand for products originating from China has also tightened freight capacity and in 2020 the overall freight capacity was considerably reduced. As a result, prices from the Shanghai Shipping Index for container cargo have almost tripled.

–           Less demand for transportation has in turn reduced the demand for fuel. As some base oils and precursors for synthetic hydrocarbons (e.g. naphtha) are also part of the fuel production process, their production has been scaled down as well. Chemical-based precursors made from crude oil such as ethylene oxide and polyglycols are also scarce. Lube blenders therefore reported a shortage on crude oil-based additives and plastic containers.

–           Lockdowns across Europe and beyond have also reduced the number of staff working at lubricant facilities thus leading to bottlenecks in production and increased costs: orders cannot be produced and delivered in a timely fashion.

–           Quantity planning cannot be carried out correctly while organizing staff rotas is also difficult.

Unrelated to Covid-19 yet still directly impacting the industry, globalization and increased market prices have also affected the production of base oils and other raw materials used in lubricants manufacturing.

Supply chains can also often fall victim to unpredictable events whether it be trade barriers, natural disasters, or production losses. For example, there has recently been an unprecedented number of 27 “Force Majeur” reports from various raw material manufacturers which have detailed weather-related problems such as that in Texas in February 2021 in which the State recorded record-low temperatures. 

The failure of a single production plant can significantly limit the global availability of certain substances and components, especially since storage capacities are limited for budgetary reasons.

Short-term bottlenecks in production and delayed deliveries in the transport and packaging sectors also lead to an overall shortage in all types of raw materials. For example, steel used in barrels to transport goods can often become scarce.

The above are just a few factors which have had a direct impact on the industry and have primarily led to a shortage in raw materials in the desired quantity and meeting the relevant specifications. Sadly, there is no way to predict or foresee what the future may hold and to determine when these shortages will be rectified.