Rubber process oil suppliers face push of demand, pull of continued logistical issues

Mike Burnett has been in the rubber process oils business for more than four decades, and he's got a feeling that 2022 may bring some new hurdles that could impede market growth for this year.

The vice president of marketing and sales for Morgantown, Pa.-based Renkert Oil L.L.C. said 2021 was strong for the areas of the RPO market his firm participates in. And even though all of its customers—across North America, Europe and Asia—project strong business levels throughout 2022, he believes inflation may rear its head in a greater way this year.

Renkert is a Chevron distributor, sells products for some other firms and also produces its own line of USP-level white oils for pharmacopoeia, food grade and medical. Most of it is used in thermoplastic elastomers products, along with some in EPDM goods. A good percentage of its rubber process oils end up in consumer goods, including automotive components.

"My concern for 2022, even though we're getting a very strong demand forecast, is when you look at the inflation rate and it continues to climb, sooner or later that's going to impact the disposable income of the consumer," Burnett told Rubber News. "And when that starts occurring I just feel we will see a cutback then on purchasing some of these products.

"Whether that happens mid-year, toward the end of the year or whether it falls into next year, I don't know."

Of course, the Renkert VP is hoping that doesn't prove to be the case, and, despite those fears, has plans to make sure the firm has product available to supply customers.

"We are preparing for the strong demand, but also are cautious whether it lasts the full 12 months of 2022," he said. "2021 was a strong demand year all 12 months, even in what had traditionally been off months because of either year-end inventory pull-downs or shutdowns/turnarounds in our customers' industries."

For those in the rubber process oils business, demand often depends on which area of the market a supplier serves. Jackson, Miss.-based Ergon Inc. said its rubber process oils have been pretty steady on average the last few years, even with the sharp, but temporary, drop in demand in early 2020 when the coronavirus pandemic first started.

"This greatly mirrors what we have seen regarding the overall demand for rubber process oils from the industry," said Nick White, the firm's vice president of business development for process oils. "Outside of rubber process oils, Ergon has experienced continued demand for products and services across multiple industries and business sectors in which we operate. As rubber process oils are a core business for Ergon, we are equipped to meet the growing needs of the rubber industry as they come."

For 2022, Ergon expects steady demand from its customers. "We also expect activity from rubber companies in trialing and investigating alternative supplies due to shifting of the global refining industry away from Group I refineries," White said. "Ergon is very involved in providing chemistry solutions globally for the rubber industry to navigate this change in the refinery landscape.

Dave Moreland, president and CEO of ChemSpec Ltd., said demand for low-toxicity process oils has increased, particularly for its supplier Repsol S.A. and its Extensoil line of aromatic oils. He said the supply and demand challenges currently plaguing the market are driving the prices for these products, along with its "good characteristics," like solubility, for SBR.

Gloria Montealegre Garcia, technical assistance manager for development of specialty products at Repsol, agreed, noting demand for the oils is growing and will keep growing.

Environmental, social and governance issues will continue to be a main focus of the industry, according to White, as well as sourcing raw materials with lower carbon footprints.

"Our customers more frequently request lifecycle analysis of products from several applications within rubber process oils," the Ergon VP said. "Group I refineries are rationalizing in Europe, leading to considerations of alternative chemistries from naphthenic to blended products to meet customers' chemistries."

White added that the rubber process oil sector was hit with significant supply shortages in 2021, caused by culmination of events. It started when Hurricane Laura hit the Gulf Coast in August 2020, followed by the major winter freeze on the Gulf Coast that caused temporary shutdowns at several refineries, which created a collective loss of product over several months.

"Although this impact was regionalized, it had ripple effects throughout the global oil market," he said. "It has taken the better part of 2021 for supplies to catch up and the market is still not completely back in balance. Luckily, the rubber process oil industry was not impacted to the degree that the chemical industry was. Availability of rubber process oils remains in a much better position than many other raw materials sourced by rubber producers."

Burnett said Renkert was able to supply the materials its customers needed, though there was a blip in supply of low UV oils and also some on the heavy side of the business.

"We see supply for 2022 being good, even with a lot of Group II refineries going through planned shutdown/turnarounds," he said. "We feel that supply will be balanced during 2022 and not short or high."

Ask Burnett about supply chain issues, however, and you'll get a totally different answer. Having materials available to sell is one thing, but getting them to customers is a totally different subject, no matter what method of shipping you're using.

Renkert does the large majority of its business in North America, but it also operates a terminal with four tanks in Antwerp, Belgium, and ships containers to service its customers in Asia. It ships by truck, rail car and ISO containers, and also moves shiploads from the U.S. to supply its Antwerp terminal.

By far the biggest issues have come with trucking, and he doesn't see an improvement on the horizon for 2022. Renkert ships freight by truck both in the U.S. and Europe, and said a lack of drivers—particularly for long-haul routes—has been the primary reason for the troubles.

But trucking hasn't been the only problem area, Burnett said. Getting space on ships to move ISO containers from the U.S. and Europe to Asia has been difficult. "For the first time last year we got kicked off a ship after having gotten space for products because someone was willing to pay more for the space," he said. "In my opinion, that's been unheard of (in the past)."

All of this has added to costs, some of which are more difficult to recoup from customers than others. The one saving grace is that everyone in the industry is in the same boat (pun intended), and all parties need to have flexibility.

"Realistically, every supplier is having problems and experiencing the same problems," Burnett said. "It's one of those things where there is a lot of empathy out there because all of us are going through the same thing in the supply chain."

Because of the uncertainty regarding transportation issues, Renkert has been keeping higher levels of inventory available to service customer needs, having to "operate from the top of the tanks instead of the bottom of the tanks," as Burnett likes to say.

"We've been having to keep the tanks full, especially when you look at the European business," he said.

Ergon also has seen the challenges in the supply chain, both for cargoes on ships and even regional shipments. White did say the issues seem to be slowly easing, adding that his firm may be in better shape than others.

"At Ergon, we are fortunate to have sister companies that provide shipping, trucking, and terminaling services, allowing us greater access to crudes and greater flexibility in getting our products to customers than some companies might have," he said.

With the supply chain and other factors, pricing pressure in the RPO business has started, and is expected to continue even more in 2022.

White said the adverse weather conditions of 2020, combined with the global COVID pandemic and volatile crude prices, led to the significant price increases that the market has seen over the past year and a half.

Burnett said that in 2021, North American pricing was stable in the markets it serves, and even moved down some in Europe and Asia. But he doesn't see that being the case in 2022. Some of the crude oil economists predict crude oil could go to the $90 to $100 barrel range. Crude prices aren't the only factor impacting RPO prices, but it is one of the largest.

"I see 2022 being a year where somewhere (pricing) has to be addressed," the Renkert executive said. "Cost of transportation being up. Operations being up. Raw materials being up. I think we will see (pricing) across all three continents that we serve begin to move upward."

Sam Cottrill, Rubber News Staff, contributed to this report.