Global demand to trigger dramatic increase in antifreeze prices
It might be time to take the shirt off your back, literally. Today’s booming textile industry is just one of a number of links in a chain reaction also involving the world’s supply of plastic bottles and antifreeze. The connection between these three vastly different industries lies in one, common element–a clear, odorless liquid called ethylene glycol (EG).
With EG’s demand causing a hike in costs for all three industries, antifreeze is expected to experience the most significant price increase.
“This is the first time in history that the EG industry as a global business is at 100 percent capacity,” says Doug Rightler, from EO & D, Inc., a consultant to the major worldwide producers and buyers of antifreeze and polyester. “From February through July, supply equaled demand almost exactly at 100 percent production.”
At press time, glycol prices in Asia jumped from 41 cents a pound to 57 cents a pound, according to Rightler, who adds those prices would lead to an approximate $5 cost increase for a gallon of antifreeze, which does not include packaging, labor and inhibitors.
“If the Chinese are willing to pay 54 cents a pound than so do the Americans.”
Some antifreeze manufacturers said as of press time there was an industry-wide 90-cent increase per gallon of antifreeze, and that retailers may experience more price fluctuations in the future.
“It’s hard to speculate where it’s going to go from here,” says Ron Moser, North American coolants manager for Chevron-Texaco. “We still have our contracted volume and we’re still good on inventory.”
Moser cites some recent Wal-Mart antifreeze prices: $6.87 for a gallon of private label antifreeze and $8.62 for a gallon of ChevronTexaco coolant.
Other companies have already begun implementing sales control (where limits are set on quantities purchased), but Chevron is yet to enforce this measure.
“I would say it’s likely things have kind of stabilized,” surmises Mark Hurt, Shell Oil Products’ marketing and brand manager for antifreeze and coolants. “(But) it’s a funny business. That could change in a day.”
Indeed, the price hike in crude oil, the starting point for ethylene glycol, has driven up cost, but China’s increase in textile manufacturing is playing the most significant role, says Rightler.
EG makes up about 90 percent of antifreeze formulas. Polyester clothing, however, includes a much smaller percentage. The glycol price increase shouldn’t affect the textile industry, which derives most of its profit from low labor costs in China.
“The cost to make a shirt is predominantly labor,” says Rightler. “If the price of EG tripled with that shirt, it wouldn’t make a bit of a difference at the retail price level. Therefore, the textile industry can pay whatever it takes to get it. And they are, and they did, and they will.”
With plastic bottles and other plastic items as well, the retail manufacturers will most likely absorb the increase, which places antifreeze at the worst end of this business equation.
In the U.S., the largest consumer of antifreeze, demand hasn’t grown in 12 years, according to Rightler. This can partly be attributed to longer lasting coolants and more sophisticated engines.
The U.S. antifreeze market, which has kept annual consumption at around 200 million gallons a year, once represented 25 percent of the world’s glycol demand. But because of China’s ramped up manufacturing climate, U.S. EG consumption now is only 5 percent of the worldwide EG demand, adds Rightler. “The antifreeze market is now just tagging along for the ride.”
If China, which will use about 1 billion gallons of EG this year, has its way, it will increase consumption by about 250 million gallons each year, but Rightler admits the country will be lucky to get an additional 150 million gallons in 2005.
“What’s happening is the Chinese are expanding their polyester business greater than the U.S. and Canadian antifreeze market every year,” he says, adding, in comparison, China’s antifreeze consumption is only 24 million gallons per year.
Many Chinese drivers use water in their radiators, he shares. “They’ll drain their radiator at night, and, in the morning, they’ll fill up with water.”
Though three new glycol factories are scheduled to go online next year–one in Saudi Arabia and others in China and Iran, “We’re forecasting that all new glycol will disappear,” remarks Rightler.
Retail outlets could sell antifreeze made with propylene glycol (PG), an environmentally friendlier alternative to EG. But PG is much more expensive, says Rightler.
Shell Oil’s Hurt suggests pushing pre-diluted antifreeze, which is already mixed with water to cut down on “sticker shock.”
“You buy a bottle of pre-dilute, it’s more of a convenience item,” says Hurt. “It doesn’t sting as bad to pay a little less.”
Some stores are trying to buy ahead, but that strategy is also bound to deplete inventory and boost prices.
Perhaps the best bet is making sure you or your service dealer customers encourage routine maintenance to preserve the life of all vehicle fluids.
Prices of EG may go down early next year, but Rightler warns the aftermarket not to be deceived by that drop.
“The message to the antifreeze industry is, be careful. If prices go down in the first quarter next year, it’s because they’ll probably go back up again.”
COPYRIGHT 2004 Advanstar Communications, Inc.
COPYRIGHT 2005 Gale Group