Europe Leads Way in Re-refining of used lubricant but industry still lacks global reach
30 September 2010
Anyone working in manufacturing industry, including abrasives, will use oil or lubricant. Legislation in North America and Europe means that disposal of used oil and lubricant is subject to strict control and this has led to companies finding new uses as either a fuel or re-refining the oil to allow its reuse.
According to a new report, “Global Used Oil 2009: Market Analysis and Opportunities”, produced by market research organisation, Kline, the world still has a long way to go before re-refined oil lubricant is fully accepted.The report says that globally, about 69% of the finished lubricant demand is converted into used oil. Of the total used oil collected, 78% is consumed as industrial fuel and only 16% is re-refined. The new report from Kline, a world-wide consulting and research firm, is a comprehensive analysis of the global used oil market. It helps to understand the drivers in the used oil market and the opportunities and threats represented in this market to participating businesses.
Over the last 10 years technology advances means that 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 points out the report.
Also, used-oil collection and disposal rates differ significantly across and within countries. 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% is collected. The remaining 26% is combusted, re-used without appropriate treatment, or simply discarded.
The front runner of the re-refining industry is Europe. Thanks to strong regulation and enforcement, nearly 90% of all used oil is collected, and 50% of this is sent to re-refining. As a result, re-refined basestocks at present account for 13% to 15% of the overall basestock supply in the region.
It is the particular economics of different methods of disposal that are the main influence on spent oil use. While North America’s collection rates are comparable to those of Europe more than 80% of the used oil collected is used in various fuel applications, while only about 12% 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 favours re-refining, collection rates are low in other parts of the world — about 60% to 70% of the total, in comparison to 85% to 90% 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.
According to Kline, there are three key drivers for growth in the re-refining industry. First, growing virgin basestock prices due to the high cost 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, puts an emphasis onre-refining.
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. Kline says that 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 points out the Kline report 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.