In early April, influenced by the OPEC meeting's decision to increase production, the release of strategic oil reserves by the United States, and the increasing prospect of interest rate hikes by the Federal Reserve, the once high international oil price fell below $100. On April 11th, the latest market trend showed that the settlement price of WTI crude oil futures in May fell 4.04% to $94.29 per barrel; The settlement price of Brent crude oil futures in June fell 4.18% to $98.48 per barrel, giving car owners confidence in the next round of oil price cuts. However, in the lubricant market, it's a different story. On April 18th, the 12% price increase policy of lubricant additive giant Lubrizol will officially come into effect. While marking the end of this round of collective lubricant price increases, it has also become the last straw that crushed the optimistic expectations of lubricant distributors.
May sees no turning point in lubricant prices
Additives are one of the important indicators that determine the cost of lubricants. Global supply is basically monopolized by a few European and American brands such as Lubrizol and BASF. Before the price of additives drops, we are not optimistic about the future lubricant prices, "said a senior distributor. In fact, the analysis of lubricant price trends has been a hot topic in the industry in recent months. Summarizing the viewpoints of various parties, the following conclusions can be roughly drawn:
The situation in Europe remains tense, and sanctions against Russia have intensified the oil supply crisis, which is difficult to reverse in the short term;
The prices of raw materials related to the strong lubricant industry chain have increased significantly, and lubricant brands are unable to fully absorb them;
The COVID-19 pandemic is raging in Europe and America, consumer demand is weak, upstream refineries are running low, and the supply of base oil is not smooth. Although the annual import of over 2 million tons of base oil is only about a quarter of China's total annual consumption of base oil, it is mostly used to blend second and third class base oil products for high-end lubricants. Currently, domestic production capacity cannot fully replace it.
In recent years, international oil prices have been like a roller coaster, ranging from a dozen dollars at low prices to over a hundred dollars at high prices. However, lubricants have actually increased by less than 20% in just ten years. For a popular car model's 4S maintenance price list, in 2016, the preferred engine oil cost 288 yuan per liter, but now it has risen to 328 yuan, which is only a little over 10% higher. If we only track the crude oil market when making lubricants, it is like carving a boat and seeking a sword. Compared horizontally with other commodities, the price of lubricants does not rise much. ”There is a saying that goes, 'If the words are rough, the reasoning is not rough.' A senior dealer, who declined to be named, spoke some widely recognized 'big truths' in the industry with a slightly mocking tone.
Struggling with prices is meaningless, how to operate in the future is the key.
Over 40% of dealers stockpile goods to meet the urgent needs of spring
The upward fluctuation of lubricant prices inevitably leads to a reshuffle of lubricant production and sales channels. There have also been disagreements among dealers regarding the future business strategy. A survey conducted by a certain industry portal website on the "price increase trend" shows that although a considerable number of dealers believe that demand is weak and price increases are difficult to change, and plan to shrink their front line, more than 40% of respondents still say they "want to proactively restock".
To investigate the reasons, firstly, the editor believes that it is directly related to the "microclimate" in the larger environment. Although the price of lubricating oil is generally rising in the industry, the differences in channel policies, supply capabilities, and brand influence among different brands have also resulted in actual differences in sales status. A distributor who has long-term cooperation with Sinopec Great Wall Lubricants stated that the brand's market warning is very timely. They reminded everyone to replenish at a low price at the beginning of the year, so the overall price of their inventory products still has a certain advantage compared to peers. Great Wall Lubricants completed price adjustments in early March, giving us ample time to operate. For example, some brands only notified price increases at the end of March, catching dealers off guard and causing this market trend to fall short
Secondly, with the arrival of the spring oil change season and the deployment of spring plowing, the demand for lubricating oil from industry users and drivers in most parts of the country has significantly increased. It is not difficult to find that several important cities in northern China have already resumed work and production, and the maintenance delays and engineering shutdowns caused by the black swan event may trigger a retaliatory surge in lubricant consumption from late April to the end of May.
Finally, the editor believes that nearly half of the dealers are optimistic about the future industry, which is also causally related to the irreversibility of consumer upgrading trends. Unlike the anxious attitude of agents and wholesale channels, the retail channels of lubricant terminals generally hold an optimistic attitude. A person in charge of a chain repair shop sighed: "With such a large number of cars now, good lubricants are not difficult to sell. Private cars are usually only maintained twice a year, and car owners are not very sensitive to lubricant prices. They generally value quality and reputation more. Yesterday, I met a car owner who came to our store for maintenance after the warranty was issued. They specified that they would use the Great Wall Golden Lucky Star JP1 0W-20 engine. The car owner said that their car has a high compression ratio engine of National VI, which is afraid of carbon deposition and blockage of the three-way catalytic converter. Domestic brands use it with more peace of mind. ”
The polarization is quite serious now. Big brand domestic products like Great Wall Lubricants are very popular in stores, but now it's not like before. Consumers are very supportive of high-quality domestic products, and they don't think there are any counterfeit goods. During the peak period of the May Day self driving tour, we also need to find agents to restock. However, some small and medium-sized brand products have recently increased in price, and the price advantage has disappeared, so they can't be sold
As the saying goes, success is but a failure. In the past, a large number of lubricant brands only retained the ability to blend lubricants, and additives and base oils relied entirely on external purchases. Although they maintained the advantage of "light asset operation", they were able to engage in price wars. But in reality, not only does the quality of each batch of products fluctuate greatly, but the upstream market situation and the health of the supply chain also directly affect the life and death of the brand. In the current turbulent situation, it is easy to be eliminated, causing irreparable impact on agents and retailers.
In summary, the editor reminds industry participants to underestimate the inevitable price increase and invest more energy in optimizing inventory structure and sorting out brand relationships. Targeting international and domestic brands with good reputation, guaranteed quality, and a solid supply chain, such as Great Wall Lubricants, we believe that we can achieve a crucial transformation in the lubricant market this spring.
