US specialty products refiner Calumet Specialty Products Partners expects the profitability of its lubricants unit to rebound as lagging prices catch up with feedstock costs that surged in the first quarter of the year.
The adjusted gross profit of Calumet’s Performance Brands unit, which includes its lubricant brands, fell by 43pc in the first quarter of the year compared with the same period a year earlier.
The issue there is every time we think we’re caught up, obviously, feedstocks keep running.Calumet Chief Executive Officer Todd Borgmann
Lubricants margins are expected to improve in the second and third quarters of the year as lagging prices are raised to catch up with higher feedstock costs. Calumet said it already raised its lubricant prices three times so far this year.
There is less of a lag with base oil prices.
Calumet said it optimized its operations at the start of the year to benefit from strong diesel margins at that time, especially relative to base oils.
“At the beginning of the year, base oils market to be honest was looking a little squishy,” said Calumet Executive Chairman Steve Mawer.
“The way we collect that diesel value of the margin is some of the least special of the specialties end up in the diesel pool instead of going specialties,” he said.
The current strength of diesel values continues to incentivize such a move for refiners. The trend is adding to the tighter availability of light-grade base oils, especially compared with the start of the year.