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Globally, about 69 percent of the finished lubricant demand is converted into used oil. Of the total used oil collected, 78 percent is consumed as industrial fuel and 16 percent is re-refined, finds recently released study Global Used Oil 2009: Market Analysis and Opportunities from global consulting and research firm Kline & Company.
Following significant technological advances in the last 10 years, the re-refining industry has reached a stage where it can produce re-refined basestocks on par with virgin basestocks. Awareness of the quality of re-refined lubricants is spreading among a growing band of end users; however, this perception is not nearly universal and customer hesitance due to perceptions of poor quality and inconsistent supply still prevents a larger-scale industry growth.
Used-oil collection and disposal rates differ significantly across countries, and even by states and municipalities. Although used oil collection regulations exist in most countries, varying levels of enforcement and incentives mean that, globally, of the total used oil generated, only about 74 percent is collected. The remaining 26 percent is combusted, re-used without appropriate treatment, or discarded.
The front runner of the re-refining industry is Europe. Thanks to strong regulation and enforcement, nearly 90 percent of all used oil is collected, and 50 percent of this is sent to re-refining. As a result, re-refined basestocks at present account for 13 percent to 15 percent of the overall basestock supply in the region.
Influencing the utilization of used oil are the economic values of different disposal options. North America's collection rates are comparable to those of Europe; however, more than 80 percent of the used oil collected is used in various fuel applications, while only about 12 percent is sent to re-refining. It is considerably cheaper and less complicated to prepare used oil for fuel applications.
With the exception of Brazil, where strong regulation favors re-refining, collection rates are low in other parts of the world – about 60 percent to 70 percent of the total, in comparison to 85 percent to 90 percent in Europe and North America. Furthermore, of the total oil collected, a significant portion is used as fuel, whereas re-refining accounts for a small percentage.
There are three key drivers for growth in the re-refining industry. First, growing virgin basestock prices due to high costs of crude oil have increased interest in re-refined basestocks. Second, improvements in re-refining technology have dramatically improved the quality of re-refined basestocks, allowing them to be used in blending of a growing range of lubricants. Third, regulation in Europe, and increasingly in North America, favors re-refining.
However, to achieve its potential, the re-refining industry will have to deal with a number of challenges. Chief among these are negative customer perceptions. End users who have no experience with re-refined basestocks equate them with poor quality, sub-standard, and adulterated products. They also tend to club all re-refining technologies and re-refined basestocks into one category. This hurts re-refiners who use advanced technologies to produce high quality basestocks. "Therefore, these companies need to set themselves apart from other re-refiners," notes Milind Phadke, industry manager at Kline's Energy practice. "This issue is particularly important in Asia, Africa, and in other low-cost markets where re-refined basestocks are equated with sub-standard, adulterated, and spurious products."
Another challenge is the industry's lopsided regional development. Re-refining has a significant presence in Europe and a growing presence in North America. In other parts of the world, however, it is practically non-existent. As the re-refining capacity in Europe has grown, the competition for the purchase of used oils and sales of re-refined basestocks has increased, much to the detriment of the industry. Also, to be able to market to global lubricant marketers, re-refined basestocks need to be available in a few standard specifications in all parts of the world. At present, this is not the case.
Kline is a worldwide consulting and research firm dedicated to providing the kind of insight and knowledge that helps companies find a clear path to success. The firm has served the management consulting and market research needs of organizations in the chemicals, materials, energy, life sciences and consumer products industries for more than 50 years.