Market Analysis – 76122302 – Recycling of used oil

Market Analysis Brief: Recycling of Used Oil (UNSPSC 76122302)

1. Executive Summary

The global used oil recycling market is valued at est. $6.1 billion and is projected to grow steadily, driven by stringent environmental regulations and the economic incentive of re-refined products. The market's 3-year historical CAGR is approximately 4.2%. The single greatest factor influencing this market is the price volatility of virgin crude oil, which directly dictates the profitability of re-refining and the pricing model for waste oil collection, presenting both a significant opportunity (in high-price environments) and a threat (in low-price environments).

2. Market Size & Growth

The global market for used oil recycling is projected to expand from $6.1 billion in 2024 to $7.9 billion by 2029, demonstrating a compound annual growth rate (CAGR) of est. 5.3%. This growth is fueled by increasing industrial output, expanding vehicle fleets, and a global push towards a circular economy. The three largest geographic markets are:

1. Asia-Pacific: Driven by rapid industrialization in China and India.
2. North America: Mature market with robust regulatory frameworks and collection infrastructure.
3. Europe: Strong policy-driven market with high recycling rates and advanced re-refining technology.

3. Key Drivers & Constraints

1. Regulatory Mandates (Driver): Government regulations, such as the EPA's Used Oil Management Program in the U.S. and the EU's Waste Framework Directive, mandate proper handling and promote recycling over disposal, creating a foundational demand for these services.
2. Crude Oil Price Volatility (Driver/Constraint): High crude oil prices increase the value of re-refined base oil, making it a cost-effective alternative to virgin stock. Conversely, low crude prices compress margins and can shift pricing from a credit-for-oil model to a fee-for-service model.
3. Circular Economy Initiatives (Driver): Corporate and governmental focus on sustainability and circular resource management is increasing demand for re-refined products, which have a significantly lower carbon footprint than virgin base oils. [Source - U.S. EPA, 2023]
4. Feedstock Collection & Quality (Constraint): The logistics of collecting used oil from numerous, dispersed generation points is a primary operational cost. Furthermore, contaminants in the feedstock (e.g., water, solvents, PCBs) can increase processing costs and limit the quality of the final product.
5. Competition from Energy Recovery (Constraint): Burning used oil as an industrial fuel (energy recovery) is a less complex, lower-capital alternative to re-refining. This competes for the same feedstock, particularly when re-refining margins are thin.

4. Competitive Landscape

Barriers to entry are High, primarily due to the high capital investment required for re-refining facilities (often >$100M), complex environmental permitting, and the logistical scale needed to build an efficient collection network.

⮕ Tier 1 Leaders * Clean Harbors (through Safety-Kleen): Largest operator in North America with an unmatched collection network and multiple re-refineries, offering a closed-loop service. * Heritage-Crystal Clean: Significant North American presence with a focus on environmental services and a growing re-refining capacity. * Veolia: Global environmental services giant with strong used oil recycling operations, particularly in Europe and Australia. * GFL Environmental: Major Canadian-based player with expanding U.S. operations in waste management, including used oil collection and processing.

⮕ Emerging/Niche Players * Avista Oil AG: European leader with advanced re-refining technology and a focus on creating high-quality base oils. * Puraglobe: Specializes in producing high-performance Group III synthetic base oils from used oil feedstock using its HyLube™ technology. * Vertex Energy: U.S. player shifting focus but historically strong in the collection and re-refining of used motor oil. * Regional Aggregators: Numerous smaller, private companies that collect oil and sell it to larger re-refiners, forming a critical part of the supply chain.

5. Pricing Mechanics

The pricing for used oil recycling is unique and operates on a sliding scale determined by the market value of crude oil. When crude prices are high, re-refiners can derive significant value from the finished product (re-refined base oil), and they may offer a credit payment to generators for their used oil. When crude prices fall, the value of the end product decreases, and the service reverts to a fee-based model, where the generator pays for collection and disposal.

The price build-up is a net calculation of: (Value of Re-refined Products) - (Cost of Collection + Cost of Processing). Collection costs are driven by labor, fleet maintenance, and fuel. Processing costs are driven by energy (natural gas), chemicals, and regulatory compliance. The three most volatile cost elements are:

1. WTI Crude Oil Price: Directly impacts the value of re-refined base oil. Recent change: ~15-20% fluctuation over the last 12 months.
2. Diesel Fuel: Powers the collection fleet. Recent change: ~10-15% fluctuation over the last 12 months. [Source - EIA, 2024]
3. Natural Gas (Henry Hub): Primary energy source for the re-refining distillation process. Recent change: ~30-50% fluctuation over the last 12 months.

6. Recent Trends & Innovation

• M&A Consolidation (Oct 2023): Private equity firm J.F. Lehman & Company completed its acquisition of Heritage-Crystal Clean for $1.2 billion, signaling strong investor confidence in the environmental services sector and continuing the trend of market consolidation.
• Advanced Re-refining Technology (Ongoing): Suppliers are increasingly investing in hydro-treating and advanced distillation to produce higher-quality Group II and Group III base oils. This allows re-refined products to compete directly with virgin oils in more demanding applications, such as modern synthetic lubricants.
• Focus on PFAS Contamination (2023-2024): Emerging EPA scrutiny on "forever chemicals" (PFAS) in waste streams is a forward-looking concern. While not yet heavily regulated in used oil, suppliers are proactively monitoring feedstock to mitigate future liability and processing challenges.
• Digitalization of Collection (2022-2024): Leading suppliers are deploying telematics and tank monitoring sensors (IoT) to optimize collection routes, reduce transportation costs, and provide customers with data-rich service verification and sustainability reporting.

7. Supplier Landscape

8. Regional Focus: North Carolina (USA)

North Carolina presents a strong and stable demand outlook for used oil recycling services. The state's robust industrial base—including automotive manufacturing, aerospace, and transportation—coupled with a large population, generates significant and consistent volumes of used oil. Capacity is well-established, with major Tier 1 suppliers like Clean Harbors and Heritage-Crystal Clean operating extensive collection networks and transfer facilities throughout the state. While no major re-refineries are located within NC, the state is well-serviced by facilities in the broader Southeast region. The North Carolina Department of Environmental Quality (NCDEQ) enforces state-level regulations that mirror federal EPA standards, creating a predictable compliance environment. The labor market is competitive but generally available, and the state's business-friendly tax structure does not pose a significant burden to service providers.

9. Risk Outlook

10. Actionable Sourcing Recommendations

1. Implement Indexed Pricing. Move away from fixed-fee or simple-credit contracts. Negotiate agreements with Tier 1 suppliers that index service fees/credits directly to a transparent benchmark, such as WTI crude oil. This aligns costs with market realities, prevents windfall profits for suppliers in high-price markets, and provides budget predictability.

2. Consolidate & Diversify. Consolidate the majority of spend (est. 80%) with a national Tier 1 supplier to leverage volume for preferred pricing and service guarantees. Simultaneously, qualify a secondary, regional supplier for the remaining 20% of sites. This creates competitive tension, ensures supply chain resilience, and provides a performance benchmark for the primary incumbent.