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State of the Lubricants Industry
Report
When people
think of the oil industry, the first thing that usually comes
to mind is the cost of fuel. When oil and fuel costs more,
everything costs more. It’s not just at the pump; groceries
cost more, deliveries cost more and of course, motor oil costs
more. While AMSOIL produces only synthetic lubricants, the
company is still hit hard by high oil prices.
An example
of how shock waves from current market volatility will be
felt lies in the auto industry. Up to now, automakers have
protected themselves from market fluctuations by locking into
long term contracts will steel producers. That’s why
large increases in steel prices haven’t driven up the
costs of new vehicles. But those contracts are starting to
run out. The same sort of scenario is playing out with every
other commodity. Copper, zinc, aluminum, magnesium and plastic
are all skyrocketing in price. According to Ward’s
Automotive, in the near future a $20,000 vehicle will
be a $30,000 vehicle, a $30,000 vehicle will be a $40,000
vehicle and so on.
Raw Materials
Ingredients of synthetic lubes, additives and base stocks,
even synthetic base stocks, have some basis in crude oil and
natural gas. The unprecedented increase in crude oil over
the past year is driving the cost of key chemicals up sharply
and often. Butane, ethylene, propylene, benzene and other
chemicals used to produce base oils have all skyrocketed in
price. Over the past 12 months, the price of base oils used
in the production of AMSOIL synthetic lubricants has risen
by 47 percent. Additives have been greatly affected as well.
Diesel oil additives are up 27 percent and gasoline engine
oil additives are up 25 percent, all within the past six months.
The price increases from AMSOIL chemical and raw material
suppliers are issued so frequently and with such significant
impact that it’s almost impossible to maintain sufficient
pricing levels. And more price increases are in the pipeline.
Packaging
The price of plastic has risen dramatically due to the increased
price of crude oil, and AMSOIL is greatly affected. Plastic
packaging, including quarts, gallons, pails and twin packs,
has risen in price by over 14 percent in the past 12 months,
and plastic cap prices have risen 21 percent in the past 12
months. In addition, steel drums have risen in price by 39.5
percent in the past six months alone.
Freight
Freight companies commonly use fuel surcharges to cope with
fluctuations in the price of fuel. Twelve months ago, AMSOIL
paid a fuel surcharge of $0.35 per mile. Currently, the company
pays $0.71 per mile, and has paid as much as $0.81 per mile.
Fuel surcharges are in addition to regular freight rates,
and current freight surcharges nearly double the cost of shipping.
Additionally, fuel surcharges apply to everything coming in
and going out, so AMSOIL pays a fuel surcharge and freight
on packaging as it comes in and again when it is shipped out
as a finished product.
Supply
and Demand
While demand for finished lubricants continues to rise, supply
has remained tight. China, India, South Africa and other densely-populated
countries are using more oil all the time. In addition, competition
for many of the chemicals used to produce lubricants continues
to increase. For example, the demand for biofuels has dramatically
increased the demand for the crops used in their production,
which has in turn increased the demand for fertilizer. Many
chemical fertilizers are formulated with raw materials derived
from the same chemicals used to produce oil additives, further
depleting supplies.
For example: seventy
percent of sulfur produced is used in fertilizers. Sulfur
prices went from $60 to $452 per long ton since Q2 2007 –
an increase of 650 percent.
Ninety-five percent
of phosphate rock is used in fertilizers. Phosphate rock prices
increased from $20/MT in March 2007 to $400/MT in March 2008.
That’s an increase of 1,900 percent in the last year.
Lithium is another
common ingredient necessary to grease production that is being
used up quickly by other industries. Lithium is a silver-white,
soft alkalai metal that, under normal conditions, is the lightest
metal and least dense solid element. Lithium hydroxide, a
lithium derivative, is primarily used in the grease industry,
with demand growing at a steady 2 percent per year over the
past 20 years. Lithium-based greases are popular in automotive,
industrial, military, aircraft and marine operations. Lithium
is also used in glass and cement applications, and has the
ability to store electrical energy. Lithium carbonate is an
important component in batteries for mobile phones, laptops,
camcorders, cameras and electric and hybrid cars. With the
popularity of portable electronic devices, and environmental
concerns increasing demand for electric and hybrid cars to
unprecedented levels, demand for lithium is increasing and
will continue to increase. For example, Toyota plans to offer
only hybrid vehicles by 2020.
Political instability
around the globe, rampant speculation, restricted access to
new sources, lack of investment in new production and a weak
U.S. dollar are major issues affecting the current state of
volatility. These issues are outside the U.S. government’s
control and all have some impact on the lubricants industry
by affecting prices.
Current
Trends
Vehicle manufacturers are under pressure to provide more efficient
cars and trucks. As a result, many have begun recommending
lower-viscosity motor oils as a way of improving fuel efficiency.
As environmental
concerns continue driving trends toward fuel efficiency and
reduced waste, quality becomes more important. As a result,
top-tier, high-mileage and synthetic oils now account for
almost 20 percent of the North American personal car motor
oil (PCMO) market and continue to gain ground.
Heavy-duty diesel
applications are facing many of the same trends. Higher value,
biofuels compatibility, extended drain capability and fuel
economy are hot topics among heavy-duty diesel owners. In
addition, the EPA recently acknowledged that lubricants in
general can deliver a 1-2 percent improvement in fuel economy,
increasing the trend toward quality oils.
Future
Trends
Environmental concerns look to be the driving force behind
future lubricant trends. Improved fuel economy, reduced emissions,
maximum engine cleanliness, improved durability and extended
oil drain intervals will be the targets for future oil formulations.
But environmental issues are far from the only factor to consider
when planning future lube formulations. The lubricant industry
is a complicated business.
The Competition
All motor oil companies have been greatly affected by today’s
volatile market. Other companies raised prices to their distributors
an average of 24 percent since March 2008. AMSOIL issued a
12-16 percent price increase effective August 1 and only had
a 5 percent surcharge prior to that. September 1 will see
another 7 percent increase.
According to Jobber’s
World figures obtained from leading auto parts chain
stores in December 2005 and May 2008, competitive motor oil
quart pricing has increased at an equal or greater percentage
over that time period compared to AMSOIL synthetic motor oil
as well.
Additional
Challenges
As an independent oil company, AMSOIL faces many unique challenges.
The volatility of the current market impacts independent manufacturers
differently than it does “Big Oil.” Recently,
the Independent Lubricant Manufacturers Association (ILMA)
submitted comments to the Federal Trade Commission (FTC) renewing
its criticism of the pricing practices of major oil companies.
ILMA’s biggest complaint lies with the major’s
practice of issuing a price increase for base oils to all
of their competitors and delaying the subsequent price increase
of their finished lubricants. Independent blenders, like AMSOIL,
buy base oils from the majors and compete against them in
the sale of finished goods.
In some cases,
ILMA contends, the same suppliers that implement numerous
base oil price increases to independents delay increasing
prices on their finished products for 45 to 60 days, causing
a price squeeze on independent lubricant manufacturers. For
example, Shell announced a price increase of finished lubes
May 23 that doesn’t go into effect until August 5.
ILMA General Counsel
Jeff Leiter said the only conclusion that can be reached is
that the major oil companies are trying to squeeze out the
independents for market share. “ExxonMobil might say
‘Shell’s our competition, not ILMA members,’
but it’s kind of curious that ExxonMobil is selling
base oil to Shell. Exxon raises prices, and the rest of them
follow suit the next day by the same amount. Our sense is,
we’ve lost a competitive market for base oils, and that’s
what is creating the problem,” said Leiter. Price increases
from base oil suppliers used to be approximately $0.05 per
gallon. Now they are more like $0.30 per gallon each increase.
Articles
Testimonials
Motorcycle
Testimonials
Business
Opportunity Testimonials
From
The Presidents Desk
AMSOIL
Synthetic Diesel Oil Articles and Testimonials
Premium AMSOIL
Synthetic Motor Oils offer the longest drain intervals
on the market, unsurpassed protection and performance that
effectively extends equipment life and improved fuel economy,
saving customers money at the pump and reducing the nation’s
dependence on foreign oil.
"AMSOIL
INC. warrants that the use of its lubricants will not cause
mechanical damage to any mechanically sound equipment when
AMSOIL INC. products are used in full compliance with the
company's recommendations and instructions."
FULL
WARRANTY
AMSOIL
synthetic motor oils are formulated to surpass engine test
specifications, offering protection far greater than competing
motor oils for extended drain intervals. Most synthetic oil
manufacturers make no claim to extended drain intervals, deferring
to the maintenance schedule provided by the vehicle manufacturer.
With its unparalleled oil and warranty program, AMSOIL offers
consumers unprecedented protection and economics.
Another
AMSOIL First
More than 20 years
ago, AMSOIL began using the NOACK volatility test as a comparison
tool and measurement of quality. Back then, nearly every oil
tested side-by-side with AMSOIL synthetic motor oils failed,
and those that passed barely squeaked by. Other oil companies
paid no attention to NOACK results until Ford Motor Company
made it a requirement for service fill oils, validating what
AMSOIL had said all along.
THE
NOACK Volatility Test
The NOACK
Volatility Test determines the evaporation loss
of lubricants in high temperature service. The more
motor oils vaporize, the thicker and heavier they become,
contributing to poor circulation, reduced fuel economy
and increased oil consumption, wear and emissions. AMSOIL
Synthetic Motor Oil resists high temperature volatization
better than other motor oils. AMSOIL Synthetic Motor
Oil maintains peak fuel efficiency and reduces oil consumption
and emissions. |
AMSOIL Now An ISO Certified
Manufacturer
AMSOIL recently
received ISO 9001:2000 certification of our Quality Management
System (QMS). NSF International Strategic Registrations is
the registrar that has verified our QMS meets the requirements
of the ISO 9001:2000 standard, the most widely utilized quality
standard throughout the world for quality management systems.
ISO standards are used by over 300,000 companies worldwide
setting rigorous standards for businesses, government and
industry.
ISO 9001:2000
is applicable to any manufacturing and service organization
providing a framework for system development that focuses
on the customer, quality system performance and ongoing improvement.
AMSOIL received ISO 9001:2000 registration under the scope:
synthetic lubricants blending, packaging, and other fulfillment
directly associated with lubricant product.
The ISO
certification puts AMSOIL in line with some of the most efficient
companies in the world. It is further assurance that the products
and services AMSOIL provides will continue to maintain the
high level of quality the company always demanded.
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