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    White Mineral Oil And Petrolatum Prices Face Upward Trend Due to Tight Base Oil Supplies

    WHITE MINERAL OIL and petrolatum prices are continuing their upward trend seen over the last 15 months in the wake of rising feedstock costs and tightening raw material supply. The rising cost of base oil, white oil's feedstock and a major petrolatum feedstock component, is prompting major producers to increase prices.

    Penreco and Crompton's Witco Refined Products have recently increased their white mineral oil prices by 20 cents per gallon and their petrolatum prices by 2.5 cents per pound. Citgo, the managing parent company for Lyondell Lubricants, confirms that the company will also increase prices on all of their white oil lines consistent with other suppliers in terms of timing and amount. Crompton, Penreco and Citgo are the three major US refiners of white mineral oils. Crompton and Penreco are the two major US refiners for petrolatum.

    Compared to last year's prices ranging from $2.75 to $3.02 per gallon in the second quarter, current mineral oil prices range from $3.35 to $3.62 per gallon for USP, NF and technical grade white mineral oils. For USP petrolatum, current prices range from 51 cents to 63.5 cents per pound as compared to last year's 44 cents to 57.5 cents per pound. The increased prices are attributed mostly to the tightening supply of base oil, producing chain reactions from base oil prices to base oil's refined products prices.

    "Ongoing rationalization of the base oil market has led to continuing closure of base oil refineries, which results in a tightening of base oil supply and made raw material increases unavoidable," says Patrick Gilbane, manager for Refined Products at Crompton.

    Considerable upward pricing pressure is expected in the base oil market this year as an effect of a significant production loss from Sunoco and Pennzoil's base oil capacity (CMR 5/21/01 p. 8). Sunoco had already shut down its Yabucoa, Puerto Rico, refinery last month producing 9,200 daily barrels of base oil capacity while Pennzoil-- Quaker State sold its Shreveport, La., refinery in April, which produced 5,900 daily barrels of base oils. The combination of high investment costs, changing base oil requirements and low profitability, has led to continuing closure of base oil refineries, according to industry sources.

    Compounding the effects of higher raw material costs is the added burden of rising energy costs that necessitate price movement of base oil refined products, according to producers. "Crude oil prices have more than doubled and are projected to remain high while natural gas prices have increased similarly with no sign of dropping in the foreseeable future," says Mr. Gilbane. Natural gas is a major cost component in the production of white mineral oil and petrolatum, both as a source of hydrogen and for process energy.

    "Taking into account -the rising costs of raw materials, energy and processing costs, white mineral oil and petrolatum pricing has lagged behind, which necessitated price movement on our part," says Daniel Schramm, vice-president of marketing and sales at Penreco.

    Supply and demand for white mineral oils and petrolatum appear to be in balance, according to one producer, although another producer hinted at excess supply of white oils, especially with the use of group II/III base oils for technical grade white oil applications, such as in textiles and animal feeds. "Until some of the hydrocracked group II base oils find another home, we expect the current supply situation to continue," says the producer.

    Demand for white mineral oil and petrolatum products remains in line with growth in gross domestic product. Current major end use markets for refined products are in polymers and personal care. Growth for white oils is also expected in specific markets, such as grain dust control, as additional grain facilities turn to white oil for dust control, and environmental applications, says Rod Dougan, manager of Lyondell Lubricants at Citgo. "We believe that the grain dust market and technical grade white oil markets will remain very competitive," says Mr. Dougan. He estimated 1.5 percent growth in the domestic white oils market per year and 1 percent growth in the global market.

    Producers are wary of projecting on another price increase for the remainder of the year although general consensus indicates that base oil prices and energy costs will remain high throughout the year. "We hope to absorb the increases as much as we can, but the outlook will depend on our suppliers and the market situation for base oils and other cost factors," says Penreco's Mr. Schramm.

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