Why antifreeze prices are boiling over
As the winter driving season begins, motorists who were used to paying less than $3 a gallon for antifreeze are now paying at least twice as much, and some stores and service stations are charging up to $12 a gallon. The higher prices and tight supplies of antifreeze can be blamed on a worldwide shortage of ethylene, which is produced from petroleum or natural gas and is a feedstock for a wide range of plastic and polyester products. Antifreeze, which also serves as a coolant for summer driving, is 95 percent ethylene glycol, one of the products derived from ethylene, 2 to 3 percent additives, while the rest is water.
Contract prices for antifreeze-grade ethylene glycol are over 50 cents a pound, more than double the price last fall, and spot prices in the United States are 65 to 73 cents a pound.
``Our supplies are adequate to fill contracted orders, but we can't go beyond those allocations or take new customers,'' says David Lundstedt, marketing manager for Prestone antifreeze at First Brands Inc. of Danbury, Conn. ``The supply of ethylene glycol is limited, not because of lack of capacity, but because of the ethylene shortage.''
Prestone holds about 60 percent of the antifreeze market, Mr. Lundstedt says. Other major suppliers are Texaco Inc., BASF Corporation, Shell Oil Company, and Old World Trading Company. In 1987, total US sales of antifreeze were about 200 million gallons.
Several new ethylene plants are being built in the US and old facilities are being returned to service, but Lundstedt notes that the additional capacity will not be available until 1989, so the antifreeze market is expected to be tight for another year.
However, ``We issued an advisory in August urging motorists not to rush out and stock up on antifreeze because of reports of shortages,'' says Jerry Cheske, spokesman at the American Automobile Association (AAA) national offices in Falls Church, Va. ``Antifreeze is available, and if motorists shop wisely, they won't have to pay top dollar.''
``Some stores are offering rebates and discounts on antifreeze, and it is being advertised widely. That indicates that we are not facing a real squeeze on supplies,'' Mr. Cheske says. ``Unless trucking companies and motorists go on a buying spree, we shouldn't see antifreeze shortages.''
But ``wholesalers and retailers have been scrambling to increase inventories, to take advantage of the higher prices,'' notes Michael Mielenz, manager for special products at Texaco.
``So far, our antifreeze supplies are OK, although the market is crazy and prices really are up,'' says Terri Kula, marketing coordinator at Kmart Corporation. ``Our antifreeze prices start at $7.50 per gallon.''
``Most of the major trucking companies bought their supplies of antifreeze during the spring and summer,'' says Larry Strawhown, chief of engineering at the American Trucking Association in Arlington, Va. ``The companies that didn't will be feeling the impact of the higher prices.''
Many in the industry note that antifreeze has been a ``dog market,'' with poor profits for several years. ``Ethylene glycol has generally earned a lower return than other ethylene products, and antifreeze has had the lowest profit margin among products derived from ethylene glycol,'' says John King, senior consultant with Kline & Co., international business consultants in Fairfield, N.J.
``There has been a strong demand on the world market for plastics, which has diverted ethylene to these higher-value products and boosted its price,'' Mr. King says. ``This has led to a tight market for ethylene glycol and pulled its price up as well.''
Accidents at ethylene plants in the US, Belgium, and Saudi Arabia during the past year have also disrupted the market for antifreeze.
Many motorists do have the option of waiting for lower prices. But John Fobian, AAA's automotive engineering director, notes that ``if a car's antifreeze is clean and no more than two years old, its life can be extended by adding a corrosion inhibitor. If the level of freeze protection is inadequate, it can usually be increased without replacing all the antifreeze.''
``With improvements in the additives, some antifreeze can be used for up to three years before being changed,'' says Mr. Mielenz at Texaco. ``We expect to develop antifreeze that will last for five years, and eventually to have a product that will not have to be changed at all.''