SHANGHAI – Chinese metalworking fluid manufacturers must make big changes in how they run businesses to survive, as they are increasingly pressured by uncertainties in China’s economy, speakers said at a lube conference here late last month.
“China has a lot of small sized suppliers, and most of them are still providing low quality, homogeneous products,” said Xu Lishu, general manager at Guangzhou-based Fangchu Chemical, a veteran MWF supplier. “This is not going to work well for them in today’s economy.”
Combined profits for industrial enterprises in China fell 4% in 2022 to ¥8.4 trillion (U.S. $1.2 trillion), according to China’s statistics bureau. Profits for the first two months of this year were ¥887.2 billion, down 23% from the same period last year.
Xu said China has approximately 2,000 small metalworking fluid suppliers, many of which do not have testing equipment for simulation tests that are important for research and development. Lacking R&D capability makes them rely on solutions from raw material suppliers solutions, which often do not match the interests of the fluid end-users.
“As China is moving towards green, low-carbon manufacturing, I have seen more clients investing in R&D to develop new processing methods or adopting new metallic alloys to stay competitive,” Xu said. “As metalworking fluid suppliers, we must do the same to stay at the same page with our clients.”
That point was echoed by Wu Ronghua, general manager at Nanjing-based Ralpher Chemical, who talked about the impacts of electric vehicles. In a typical EV, five different types of metal alloys are used to make major parts. For example, copper aluminum alloy is used for the body, and magnesium aluminum silicon alloy is needed to make components in the power system.
“Many of the alloys are not used in conventional vehicles, so it’s important to develop products to process these metals,” he said. He added that EVs do not have an internal combustion engine, so “the fluids used to process ICE parts are no longer needed.”
Another challenge is the shortage of Chinese-made high quality raw materials, Fangchu’s Xu said.
“So far we have been relying on foreign suppliers for materials like fatty acid and phosphate compounds,” he said. Since the outbreak of COVID-19 in 2020, unreliable supply and volatile prices have added to the financial burden that manufacturers were already bearing.
But things changed recently, as China has been working hard to localize its supply chain across all industries to avoid “Ka Bo Zi,” literally meaning strangle, a term that China uses to refer to Western suppression. For example, Xu said Chinese manufacturers are likely to supply some high-quality phosphate and chlorine compounds in the near future.
As a long-time metalworking fluids provider in China, Xu said he saw his clients demand more swift, customized and small-quantity supplies.
“Clients no longer wish to stockpile metalworking fluids as they seek to be lean and nimble,” Xu said. “But as a manufacturer, many of us probably cannot afford just serving small quantities. At Fangchu, we managed to do both.” The company has large quantity production lines for several products usually sold in bulk, such as semi-synthetic cutting oils. It also has several lines for customized products sold in small quantities.
To expand sales, Fanchu is also looking for opportunities overseas. it has been selling metalworking fluids in Southeast Asian countries, including Thailand and Vietnam.
“Currently the sales are still small, but we aim to be a major metalworking fluids supplier in Southeast Asia,” Xu said.