October 2008 Edition

fluid management

Like a ‘perfect storm’

Though oil prices have fallen, lubricant costs remain a heavy burden

By Peter B. Alpern, Associate Editor

When oil prices surged in early summer, the increase sharply cut into the profits of numerous American businesses, pushing many to raise prices and maneuver aggressively to offset the growing cost of merchandise made from petroleum.

Airlines, package shippers, and automobile owners were no longer the only ones being squeezed by the ever-mounting price of oil, which hit a record high of $147.27 a barrel on July 11. Though as of press time oil dropped by more than a third of its price, there was no change in the domino effect from months earlier. The high cost of petroleum-based products is touching every corner of the industry.

Manufacturers of lubricants, which are made from base oil and various additives, have watched their costs skyrocket, forcing them and their users into unpleasant choices: Should they raise prices, shift to less costly procedures, pass the costs onto customers, or all three?

Castrol Ltd., one of the world’s largest manufacturers of lubricants, for instance, has adopted several programs to help refine customers’ lubrication processes.

“We were already seeing upward price pressure throughout the year. But in May, that’s when things started to go crazy. Most of the suppliers out there saw their cost on base oil go up over 80 cents to a dollar overnight.” — Shane Terry, president of North American Lubricants

But moving toward efficiency isn’t enough. Castrol has raised prices on its lubricants three times in the last year — and a fourth increase appears to be imminent.

"We have to try to keep up with the cost increases we’ve incurred," says Tim Allsup, Castrol segment manager. "We always try to absorb as much as we can, but it gets to a point where you have to attach them along."

That increased cost has shifted downriver, hitting manufacturers in nearly every facet of industry.

"The rise in petroleum-based products has pervaded everything," says Al Lubrano, president of Technical Materials Inc., a Lincoln, R.I.-based manufacturer of specialty metal products for computers, automobiles and telecommunications. "And now it’s impacted the price of lubricants. There’s really nothing you can do about it. With all of our equipment, you have to flood them with lubricants. We have no choice."

A steady upswing

Like the price of oil over the last year, the cost for lubricants has risen swiftly and by staggering proportions.

"The costs have basically doubled," says Gerry Letendre, CEO of Diamond Casting and Machine Co., a component manufacturer in Hollis, N.H. "You end up spending twice as much for the same amount of product."

Material costs have risen across the board in the industrial sector. Many increases were circumstantial, reflecting the weak U.S. economy.

"What we’ve seen is a perfect storm of events," says Shane Terry, president of North American Lubricants, a manufacturer of motor oils, hydraulic oils, and transmission fluids.

Most suppliers enact pricing adjustments at the start of each year. North American Lubricants pushed through a modest increase for January. By the first weeks of summer, a series of circumstances changed the face of the lubricant industry.

On May 21, oil prices shot past $135 per barrel. Base oil producers responded by eliminating "spot purchases" — discounted oil bought on high volume orders — and canceled pending purchase orders.

At that same time, as gasoline and diesel pushed toward historic records, major oil refineries pulled back on the production of base oil — further exacerbating the situation.

"We were already seeing upward price pressure throughout the year," says Terry. "But in May, that’s when things started to go crazy. Most of the suppliers out there saw their cost on base oil go up over 80 cents to a dollar overnight."

Sunnen Products Co., which manufactures honing machines, abrasives, and bore gages, including its own line of honing oils, pushed through five price increases in June and July alone.

"We’ve had customers that come back to us and wonder why we’re increasing our prices so high," says Sunnen product manager Mike Murphy. "I say, ‘Have you been to the gas pump lately?’ "

But as oil prices have begun to ebb, that relief hasn’t translated into price reductions for lubricants.

"The end consumer, meaning the industrial plants and manufacturers, have not seen the full effect of these price increases on their costs yet," says Terry. "Those are still being passed onto customers. And they will probably continue to be passed on, I would guess, through the end of the year.

"So we have a solid four or five months left of increases. There are some major increases that are going to be hitting the market now and in the near future. Watch out. These are increases the general consumer has never seen before."

Maneuvering methods

When the price of any product reaches an inflated rate, consumers will ultimately create new ways to save elsewhere. Whether that comes through driving trucks more fuel efficiently, heating a plant with geothermal pumps, or turning off motors when they’re not running — industry has begun thinking outside the box.

But lubricants present far more of a challenge because they’re so specialized.

One of the most common temptations is to simply cut back on how much and how frequently lubricants are applied. It is also one of the most twisted and self-defeating forms of logic.

"If you skimp on maintenance and you try to cut back, you could end up having to buy replacement parts or a whole new machine," says Roger Sustar, president of Fredon Corp., a supplier of machined parts, based in Mentor, OH. "And that’s a heck of a lot more expensive."

Simply maximizing a maintenance schedule can pay immediate dividends.

Total cost of ownership (TCO) is the methodology that Castrol has adopted when selling value-added products and services. TCO is a calculation designed to help customers understand and assess the direct and indirect costs and benefits of the materials they purchase. It includes the initial outlay of purchasing, such as the unit price of products and the volume purchased, and any indirect costs affected by product usage.

According to Castrol Product Manager Phil Ames, price is often only a small portion of the TCO.

Lubricants, he estimates, account for about 3 percent of the total maintenance cost of an operation. However, they have a much greater impact on the overall maintenance and production budget due to the value they create upstream and downstream.

So while the temptation might exist to purchase the lowest cost lubricant and use it in higher quantities to get the required lubrication, it ultimately might not be cost-effective. A more expensive, specialized lubricant might cost more initially, but could help raise production volume, reduce parts replacement cost, labor cost, including environmental impact and wastewater strain.

"That’s one of the areas that we really work toward: digging deeper into the total impacted cost of the lubricant and putting a program together that can provide some substantial savings in either cost or production increase," Ames says.

Whether it is through a formal program or through greater systematic scrutiny, how lubricants are used is being viewed more seriously.

"The days of the loosey-goosey service schedule are over," says North American Lubricants’ Terry. "I’ve been to many, many manufacturing plants where the maintenance manager’s rule of thumb was viewing oil as cheap insurance. Those days are over. They need to maximize their service intervals and their service program."

Cutting the coolant

An increasing number of companies are finding that in the right applications and cutting requirements, minimum quantity lubrication (MQL) can be a cost-saving and environmentally friendly option.

Like lubricants, the cost of coolant continues to rise. In fact, some estimates suggest coolants take up approximately 15 percent of the lifecycle operational cost of a machining process, including the costs associated with procurement, filtration, separation, disposal, and record keeping for the EPA.

MQL, or near-dry lubrication, is the use of a minimal amount of cutting fluid mixed with air as an aerosol to provide controlled lubrication and reduce friction at the cutting-edge zone.

The process permits dramatic cuts in coolant costs, while protecting workers and the environment. It also can provide improved tool life and surface finish — even though tool life is often the reason why wet machining is applied.

MQL machining has already been applied at Ford Motor Co.’s Van Dyke Transmission Plant in Sterling Heights, MI. It provides a metal removal process that is performed nearly dry — all without having to invest in a costly cooling system.

"MQL is the best way of minimizing how much product you’re actually using at the point of cut," says Castrol’s segment manager Allsup.

There are other similar coolant technologies being bandied about, he says, including the development of compatible chemistries — where the coolants, hydraulic oils, and lubricant all work in combination.

"I think you’re going to see a product line in the near future that’s from coolants, lubricants, and honing fluids that are all compatible in one eco-friendly package," Allsup says. "That will allow the user to not have to dump and run minimal maintenance. It’s all based on certain individual components of the fluid."

A more expensive, specialized lubricant might cost more initially, but could help raise production volume, reduce parts replacement/labor costs, including environmental impact and wastewater strain.

More in the present, many companies have turned to dry machining as a means of production. One of the primary benefits is trading a slightly shorter tool life for the chance to eliminate the cost and headaches of maintaining cutting fluids.

Dry machining can be limited by application. For instance, sometimes a cutting fluid can stain a workpiece or contaminate it. Consider a medical implant, such as a ball joint for a hip. Fluids are undesirable where there is the fear of contamination.

But a workpiece’s suitability for a dry process also depends on the material. A cutting fluid can be completely unnecessary for cutting most alloys of cast iron, and carbon and alloyed steel.

For a number of materials, dry machining is seldom an option. High-temperature alloys make up an entire class of materials in need of cutting fluids. Cutting in nickel- and chromium-based alloys in particular produces extremely high temperatures that require fluid to dissipate the heat. For machining titanium, cutting fluids are mandatory.

Next generation

Lubricants made from vegetable oils, such as soybean, corn, canola, and rapeseed, offer a safe, biodegradable alternative for many applications. Researchers have been working on these bio-based products since the 1980s, but they were long overlooked because they didn’t work as well as petroleum-based products and, more importantly, were exorbitantly more expensive.

But in recent years, technological advances have improved bio-based lubricants, and with the increased rise of oil prices and energy security needs, they have become more cost-competitive with traditional petroleum products.

Lou Honary, founder of the University of Northern Iowa’s National Ag-based Lubricants (NABL) Center, expects bio-based lubricants to be in widespread use within a window of two years.

"The time has come that we’ll see more rapid growth for these," says Honary.

One company that has experimented and found great success with bio-based lubricants is Alcoa, the world’s third-largest producer of aluminum.

Earlier this year, Alcoa tested a soybean oil lubricant developed by the U.S. Department of Agriculture’s Agricultural Research Service (ARS). Used at its Reno, NV, aluminum rolling mill, Alcoa found that the new lubricant worked better than the petroleum product it had been using, according to Ronald Reich, a technical consultant at Alcoa. The fluid cut costs and volatile organic compound emissions by more than half.

Vegetable oils as lubricants are nothing new to the metalworking industry. However, in previous efforts, the lubricants oxidized too easily. The soy oil resisted oxidation because scientists reduced the double bonds in the structure along with adding proper antioxidants for stability.

Although the technology is advancing quickly, it still has a way to go. Bio-based lubricants take up only a 5 percent share of the market and remain inadequate for use in automotive, aircraft, and heavy machinery industries.

"Typically, with most of your veggie-based lubes, you don’t get the oxidation like you get from a crude derived mineral oil," says Castrol’s product manager Ames. "The applications you can use them for are somewhat limited. You make a sacrifice. But it’s something that’s developing."

Part of the process

For better or for worse, Kennametal relies heavily on having access to a steady stream of lubricants. The metalcutting manufacturer uses LACH solvent for its powder processing operation. It serves as a virtual lifeblood of the ball milling process, preventing the material being ground from coating the milling balls.

But the cost of that solvent has risen 61 percent in the last 15 months, including massive jumps in every month of summer.

Kennametal has little choice but to accept the times.

“We’ve had customers that come back to us and wonder why we’re increasing our prices so high. I say, ‘Have you been to the gas pump lately?’ ” — Sunnen product manager Mike Murphy

"The escalating price is definitely a challenge to manufacturing," says Joseph J. Penkunas, Kennametal manufacturing manager. "As with any challenge, we must manage the impact through, among other things, leveraging our global purchasing footprint when possible, and through looking for ways to conserve the resource. Because at the end of the day, these lubricants are necessary to the manufacturing process and their cost is a fact of life right now." It’s exactly the same boat nearly every manufacturer is in these days. And while companies can do the little things — such as storing lubricants in dry, clean areas and watching not to over-buy on storage — the bigger picture boils down to one simple truth: the price of lubricants might not be coming down soon.

One of the most common lines of thinking Sunnen product manager Murphy has heard over the years is a lubricant is a lubricant — oil is oil.

"A lot of times, people are perceiving lubricant only by its price — they’re not looking at what it does for their machines or how it factors into the cost per part," he says.

"The reality is, lubricant is part of the whole process. They say there are nine parts to a process: the machine, the tooling, the fixturing, and so on. Well, lubricant might be viewed as only No. 9 on that list. But it’s just as important as anything else."

Castrol Ltd.

U.S. Department of Agriculture Agricultural Research Service

North American Lubricants

Sunnen Products Co.

Kennametal

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