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The price of grease is projected to decrease slightly over the next three years, as the surge in post-recession demand slows and oil prices decline even further, according to a new report from IBISWorld. Grease prices have risen slowly in the past three years due to a combination of strong post-recession demand and declining oil prices.
Greases have a buyer power score of 3.9 out of 5, indicating that buyers enjoy somewhat of an advantage when it comes to negotiating supply agreements. Although grease products vary in terms of their viscosity, base oil type, additives and price, the vast majority of these grease characteristics are standardized among suppliers, notes IBISWorld analyst Kevin Young. As such, there is a low level of specialization across grease products, benefiting buyers by increasing product homogeneity and easing the selection process.
Furthermore, while there is a number of large suppliers, about half of the market is comprised of small and medium-size suppliers. Consequently, buyers have a plethora of options from which to choose when sourcing greases, including manufacturers, wholesalers, retailers and other resellers. Product commoditization and the widespread availability of vendors foster intense price competition among manufacturers, wholesalers and retailers alike. Major market players include Royal Dutch/Shell Group, BP PLC and Exxon Mobil Corp.
Weak price growth in the past three years has also benefited buyers. Despite the post-recession surge in domestic demand from the industrial sector, the average price for greases has risen at an estimated annualized rate of only 0.7 percent during the past three years due in part to declining oil prices. Oil is the primary input used to manufacture grease; as such, oil prices have a major impact on grease prices. Consequently, the recent slide in oil prices is beneficial to buyer power and is forecast to result in a slight decrease in prices throughout the next three years.
One factor that diminishes buyer power is the lack of substitutes for grease. In most scenarios, oil lubricants cannot be used in place of grease because grease's viscosity makes it more suitable for lubricating industrial equipment and machinery. Also, high price volatility (primarily driven by volatile oil prices) has made it harder for buyers to gauge future product prices.
Nonetheless, weak price growth, low specialization and the large number of suppliers in this moderately concentrated marketplace provide an overall advantage to buyers sourcing grease products. For more information, visit www.ibisworld.com.