Quaker Houghton: Cyclical and Structural Tailwinds Could Align in 2027-2028

Research evidence excerpt

Quaker Houghton: Cyclical and Structural Tailwinds Could Align in 2027-2028

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generic lubricants. In contrast, demand mix in India is more akin to Chinese dynamics roughly two

decades ago. We expect EU demand to remain roughly flat, at best, in 2027-2028.

Pricing Catching Up in 2H: Price versus cost differentials likely shift in QuakerHoughton's favor

over the next few quarters. The ~200bps gross margin headwind in Q2 will likely be recouped (on

a % basis) by year-end, helped by index pricing (~25% of sales on a 3-month lag). The blockades

of the Strait of Hormuz have blocked 40%-45% of US Group III base oil supply, and shifts in Korean

refining activity have affected a further ~30%. In the US, refiners have shifted from producing Group

II base oils in favor of diesel. This has lifted base oil prices to >$10/gal, or >2x pre-war levels.

Adverse weather in the Gulf Coast region could tighten US supplies further. We do not expect

supply conditions to normalize until 2H27. While QuakerHoughton can use other ingredients (oil

derivatives represent roughly a third of raw materials), the dislocation in the lubricants and motor oil

markets could ripple through to customer activity levels in 2H26-1H27. In terms of other shortages,

alumina appears to have had more of an impact (QuakerHoughton is less exposed, due to its

relevance for flat-rolled) than sulfur or helium (where there are workarounds in steel processing). On

a related front, oleochemicals have been pressured more by the combination of drought impacts,

rising demand for sustainable ingredients in cosmetics, and persistent demand for fire-resistant

hydraulics. Laurence Alexander * | Equity Analyst

+1 (212) 284-2553 | lalexander@jefferies.com

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