Industrial Agricultural Products Center
Date of this Version
1994
Abstract
Industry Structure
Lubricants' base oil production is virtually controlled by five, vertically integrated, multi-national companies. Their market shares are large enough to permit strong influence over the entire industry and to render competition ineffective. It will be difficult for new firms to enter the lubricant's industry and compete successfully with these entrenched firms. The lubricants market is large. The market is dominated by petroleum based, mineral oil products. Projected market growth is minimal, and worldwide supply is ample. Growing environmental awareness and the prospect of stringent regulations regarding petroleum products use have spurred renewed interest in the manufacture of vegetable oil based lubricants. Product performance will likely be more critical to success than competitive price.
Markets that offer significant potential include those where state regulations mandate biodegradable lubricant use or in industries that seek avoid costly remedial clean ups.
Environmental Threats or Opportunities
There is no universally accepted definition for environmentally acceptable lubricants, but the American Society for Testing Materials has formed a subcommittee to establish standards. The Environmental Protection Agency (EPA) has determined that our nation's remaining water quality problems are largely attributable to pollution from nonpoint sources. The EPA is stepping up efforts to reclassify nonpoint sources as point sources to subject former nonpoint sources to regulation liability. Public perception of ground water contaminants has been the catalyst to stimulate reclassification. Hence, in many applications a readily biodegradable and nontoxic lubricant is preferable to current options especially where the product is introduced into nature.
Lacking federal government mandated change, any firm producing an environmentally superior lubricant faces several realities. First, the product must perform as well as or better than existing lubricants. Second, success may be most easily achieved by marketing products in states that have already regulated lubricants. And finally, because the global market for environmentally friendly products is still heating up, the odds for a "green" product's success are very good.
The Drip Oil Market
If 100 percent of petroleum based drip oil was displaced by soyoil, 1.68 to 2.36 million bushels of soybeans would be consumed to produce drip oil. A more realistic forecast by one of the big five lubricant firms is sales of 2.5 million gallons for all biodegradable lubricants by 1995.
National introduction of biodegradable lubricants is feasible for one of the industry's dominant firms, but for smaller firms, niche markets and regional introduction would be more manageable and enhance the chances for success .
Drip oil is marketed as both a private branded drip oil and a nationally branded lubricant used for drip oil. Consumers look for anti-wear additives, lubricity and viscosity additives and quality for the price. The drip oil market is composed of more buyers who purchase small quantities of product and fewer buyers who purchase large quantities of product. Therefore, profits will not be garnered by "product turn" generated by high volume, low priced sales, but by offering consumers enhanced product value through distribution, packaging and product performance. Firms who can deliver the above three criteria will find consumers willing to pay a premium price for their products.
Comments
Prepared in May, 1994 for: The Nebraska Soybean Development, Utilization and Marketing Board.
Prepared by: The Industrial Agricultural Products Center, Janice L. Callum, Marketing Research Assistant.