Southern Chinas enormous manufacturing base makes it a huge market for metalworking fluids, but that market is shifting swiftly. Some heavy industries are moving overseas, taking their oil requirements with them. The regions flat to shrinking demand, compounded with rapidly evolving machining technology and increasingly strict regulations, has most suppliers scrambling to stay competitive.

On a recent trip to Guangzhou, the areas heart of manufacturing, LubesnGreases got to peek behind the curtain of a pioneering research institute that has led the march to educate the market and develop cutting-edge products. We also took an inside look at one local startup that has found success in niche markets such as drilling and cutting oils for electronic devices.

In a complex and contracting market, the latter firm has positioned itself toward the future by scanning the massive metalworking industry for new opportunities. Chinas metalworking fluids production capacity may be the biggest in the world at approximately 500,000 metric tons per year, and demand is mostly balanced with supply, Guangzhou Kosan New Material Technology Co.s Li Maosheng said during a September interview at the companys headquarters.

But industrial lubricant demand growth is static overall, even shrinking in a few segments as some industry production factories have picked up and moved to Southeast Asia, the professorial senior engineer explained. Making the situation trickier for suppliers are improvements in base oil quality-which generally lead to longer drain intervals-and trends such as minimum quantity lubrication, which significantly reduce volumes of metalworking fluids used on individual machines.

Most of the demand is in the southern and eastern parts of the country, as Guangdong province and southern China in general have long been a big potential market for industrial oils, Li noted. For example, Honda and its affiliates alone have at least four engine and automobile manufacturing facilities in Guangzhou. However, both state-owned companies and private manufacturers like Honda are starting subsidiaries in Vietnam, to name one Southeast Asia country, for cheaper production.

Metalworking fluids suppliers often follow original equipment manufacturers, and his company hopes to do that as needed in the near future, Li said. But while oils for manufacturing automobile spare parts, wheel hubs and drive shafts play a huge role in the companys portfolio, the automotive sector is not Guangzhou Kosans biggest or most important category for the near future.

Instead, the communications industry is the new hot market for Lis company, which launched last May after he and several other managers who formerly worked with Guangzhou Mechanical Engineering Institute formed Guangzhou Kosan in partnership with the already established Guangzhou Fanchu Lubrication Technology Co.

Chinas communications industry, which includes the manufacturing of mobile phones, personal computers and other electronic devices, is second to none in terms of market opportunities for metalworking fluids suppliers, said Li, estimating that 1.4 billion mobile phones were produced nationwide last year. Securing clients with massive production scales such as Hon Hai Precision Industry Co. (better known as Foxconn, which makes Apple iPhones) and Huawei Technologies Co. is lucrative even if the actual volumes of fluids required for manufacturing their products pales in comparison to that of more traditional metalworking fluids sectors, such as the automotive industry.

For example, one of the Kosan-Fanchu groups clients has a contract for deliveries of intermediate bulk containers amounting to around 200 metric tons per month of glass cutting fluids, and total production capacity is only around 7,500 t/y for now. However, as it strives to reach its 10 million yuan turnover goal, the group isnt focused on selling higher volumes, but on procuring better raw materials, competing in international markets and attracting more investments and partners. These are triumphs Li hopes will come on the heels of continued research and development endeavors.

Lis firm relies on its team of experts such as himself-a holder of two doctorates in chemical and mechanical engineering-and close ties with the government to continually advance the firms research and development. If you focus on improving quality in R&D, you will find good raw materials to deliver what the customer requires. If your product sells well, the R&D has paid off. But its always changing.

A veteran in the industry, Li is not averse to change-hes witnessed Chinas evolution from a time during which almost all that was necessary to get metalworking fluids to market was production equipment. Metalworking fluids technology has advanced rapidly in the past 20 years, and most tremendously in the past 10, mostly as the result of new materials and machines in industry, he said. If the materials are different, the tribology must be different, and therefore the ingredients must be different. Most companies used to just produce, but now its almost mandatory that each has its own lab and R&D center to focus on better quality.

Machines run faster, rust prevention has taken more precedence, cleanliness and waste oil removal are more paramount, API Group II and Group III oils are increasingly used and demanding better chemical additives in tow, and prominent OEMs are looking for only the best products on the market.

Keeping up with technology requirements-such as the uptake of computer numeric control machine automation, the switch to more alloys and three-dimensional printed materials, and the evolution from electronic devices with 2-D glass to blue diamond and 2.5-D or 3-D curved glass in some cases-is paramount to success.

But another huge driver of market evolution is government requirements, which are particularly strict and fast-changing in China as the worlds second-largest economy tries to keep up with new environmental and safety standards in the West.

There are still many problems that need to be solved, bringing a lot of opportunities for certain companies, Li continued. Now, oils must be very thin-the requirement is strict. Furthermore, many toxic materials are now banned or limited by the government.

Regulations limiting the use of harmful chemicals such as chlorinated paraffins are important to minimize toxicity in the manufacturing process, but the governments involvement in the industry encompasses more than just safety concerns. Himself involved in provincial and municipal bureaus, Li explained that institutional policies are meant to bolster industry and infrastructure from the building blocks, starting with the very first drop of fluid used to help shape material. The government encourages industrial oil companies to enhance quality.

After all, thats why his alma matter organization was formed several decades ago. On a tour of Guangzhou Mechanical Engineering Institute facilities, LubesnGreases learned that the state-owned research institution and producer of industrial metalworking fluids and automotive engine oils plays a pivotal role in Southern Chinas rapidly evolving market.

As GMERIs director, Xiang Hui, explained, The Chinese government essentially created the institute to teach end-users how to use lubricants and to educate manufacturers working with metals on how to choose oils. In the late 1970s, professors, engineers and scientists set out to elucidate the fundamentals of what was then an esoteric field through books, journals and research initiatives.

Decades later, the issues facing the industry are much more complex and myriad: new-energy fuel initiatives mean that lubricants must work with low-cost methanol; new standards require the testing of slideway oils friction coefficient; oils for future high-speed railways need evaluation; a burgeoning market for robotics requires new types of grease; long-lasting emulsified oils are in demand; sulfur and chlorinated paraffins need to be reduced in formulations; metalworkers need solutions for collecting waste oils; and antimicrobial concerns are growing in the manufacturing of communication devices. These are just some of the problems GMERI digs into on a daily basis.

For example, customers go to GMERI with grievances that products from leaders in metalworking fluids such as Castrol and Houghton are expensive. They ask GMERI to develop a custom product that performs the same at half the cost, Xiang said.

Or end-users working on iPhone products might approach GMERI with need for oil-free solutions for drilling, grinding and cooling-which means a lubricant comprised of just water and additives.

Over the years, GMERI facilities became home to a range of testing equipment for every aspect of the industry. The institute uses Microtap USA equipment to test power in cutting and drilling applications that are used in the making of iPhone 7s. It houses Ascott Analytical Equipment test chambers to develop anti-rust elements along with equipment to measure particle counts, test tension rolling oils and power steering fluid, gage vibration and titration, and more. Xiang boasted of GMERI being the only entity in China to test slideway coefficiency.

As its expertise mounted, GMERI was naturally positioned to be a contender in the market, and it soon began producing a portfolio of metalworking fluids, greases and other lubricants. It now makes over 1,000 products, including Jetsun-branded engine oils under an acquired subsidiary and automatic transmission fluids. Along with what Xiang said is the biggest lubricant research laboratory in China, which is adjacent to its headquarters in the science city zone of Guangzhou, GMERI has a production facility at its former headquarters with capacity of 50,000 tons per year, and a factory in Dongguan that can produce 20,000 t/y of engine oils.

Like Lis company, GMERI is positioning itself to stay at the forefront of an ever-changing and complex market. Both companies are doubling down on research, working with leading international additive suppliers, and attempting not only to gain market share in Southern China, but make inroads abroad.