Safety-Kleen will blend its motor oils with an increasing amount of its own rerefined base oil to help it weather the pricing volatility in the U.S. API Group II base oil market, parent company Clean Harbors’ officials said during a quarterly earnings conference call.
 
Alan McKim, Clean Harbors’ founder, chairman and CEO, noted its oil rerefining and recycling segment faced a challenging pricing environment throughout 2013’s first quarter.
 
“After a 38 cent drop in Group II base oil pricing in January, we saw about a 15 cent price jump in March,” McKim said during the conference call in early May. “Although Group II pricing is stable, it is still down over 90 cents per gallon from June of last year. As margins in the blended market are higher and less subjected to these severe price movements versus Group II, we’re targeting getting our blended output to cross that 50 percent threshold this year.”
 
“Our goal is to sell more blended products and to move that from that 50 percent level to 60 percent and even beyond, converting not only our own fleet but going after all the major fleet operators out there and really expanding their marketing efforts across the Clean Harbors custom base,” McKim said during a question and answer session with investment analysts.
 
This has been ongoing for several years at Safety-Kleen, McKim noted. “Just three years ago, only 38 percent of Safety-Kleen’s output was blended and last year it was closer to 44 percent,” he said. “Our blending activities range from mixing in certain additives to generating our own branded line of recycled products sold as EcoPower.” Supporting that blending expansion is the $15 million, 20 million gallons-per-year blending facility Safety-Kleen added to its East Chicago, Ind., site late in 2012.
 
Safety-Kleen’s East Chicago, Ind., rerefinery has 800 b/d of Group I and 4,200 b/d of Group II capacity. The company also has a rerefinery in Breslau, Canada, with capacities of 700 barrels per day of Group I and 1,200 b/d of Group II.
 
McKim said another way the company is lowering its exposure to the base oil spread is via the input side. “Safety-Kleen uses no virgin crude, so we have more control over our feedstock than traditional refineries,” he said. “We’re gathering waste oil from thousands of accounts. We’re looking at more rapidly adjusting our pay-for-oil program to combat pricing pressures and abnormalities in the market. Together, we believe these two steps will lower volatility and effects of the near-term price swings in the Group II marketplace.”
 
In response to a question about potential pricing effects from upcoming new base oil capacity additions, James Rutledge, Clean Harbors’ vice chairman, president and chief financial officer, said, “from what we understand, a lot of the capacity additions that are coming on are substantially in the virgin lube area, and a lot of it is destined for export with the growth in Asia and with Europe eventually coming back – that’s really what it’s mostly geared toward.” Rutledge said the company is seeing a growing interest from a sustainability standpoint of customers wanting a rerefined product, and that, “we believe that the demand for rerefined [Group II base oil] will increase going forward.”
 
Clean Harbors acquired Safety-Kleen for $1.25 billion in December 2012.

by George Gill

Lube Report from Lubes'n'Greases Magazine

Volume 13 Issue 21