Growing Demand for Diesel is Creating Growth for Fuel Additive Chemical Companies

Implications: Higher diesel prices relative to gasoline reflect the growing use of this more energy efficient transportation fuel. Increasing volumes of diesel fuel are generating good profits for the fuel additive companies and enhancing their already attractive current margins.

Analysis: Increased diesel usage is supported by cleaner (low sulfur) fuels, increased penetration of bio diesel blends and better diesel engine operability. Refiners will eventually respond to the increased margin potential and bring relative fuel pricing back into line.

In the meantime, growing diesel volumes and the complexities associated with generating acceptable operating performance with bio diesel blends are producing strong margins for the fuel additive companies.

Publicly traded additive companies benefiting from this situation include Lubrizol, Newmarket and Innospec. For the past few years these companies have delivered exceptionally strong operating results as structural changes in the competitive environment have increased both their margins and their outlook. Lubrizol and Newmarket are also benefiting from improved lubricant additive trends, while Innospec is the most highly leveraged to growth in diesel fuels.