New Growth Engines Seen for Chinese Lubes

Share

BEIJING – Under the current government leadership, Chinese lubricants companies should expect the next decade to be the best of times, an analyst told the China Lubricant Market Focus conference here on April 16.

For me, the outlook is obvious based on the three recent major central government meetings, said Guan Qingyou, vice president at Beijing-based Minsheng Securities, and former research director at CNOOC, referring to the Communist Party of China 3rd plenary session, the National Peoples Congress and an urbanization conference held from November to March.

Get alerts when new Sustainability Blog articles are available.

Loading

Look into each meeting, we will find many indications to guide the next move for companies in the energy industry he continued. For example, [judging from] the urbanization conference, the aggressive, nationwide demolition and expansion we used to see will not happen again, so companies expecting to benefit from massive construction will be disappointed.

At the urbanization conference in December, Chinese President Xi Jinping made it clear that urbanization in Chinas current stage should be a natural process rather than an anxious, destructive competition.

The same goes for massive national infrastructure construction projects, he said, referring to the CNY4 trillion (U.S. $641 billion) stimulus plan by the previous Chinese leadership at the beginning of the global financial crisis.

At the plenary session last November, Xi said Chinas economy should rely on stable and sustainable development, rather than gross domestic product growth alone.

So where should lube companies look for profits if there are no more aggressive construction projects?

Companies need to think about the new areas that the government wants to push, including e-commerce, green business and regional economic integration, Guan said.

For example, a plan to push the joint development of Beijing, Tianjin and Hebei province is expected to be revealed by June. The plan, drafted by the National Development and Reform Commission, is to establish Tianjin and Hebei Province as satellite areas of Beijing to ease the tremendous pressure on the Chinese capital by construction of plants and hospitals and by taking over some businesses.

To support the integration, Beijing is to build a 9,000 kilometer highway network and inter-city rails between major cities in the region by 2020, according to the Beijing government.

The plan shows a lot of opportunities for lube and grease suppliers, Guan said.

In vast Northwestern China, a traditionally underdeveloped region, new plans to stimulate economic development were recently unveiled. In Xinjiang Uyghur Autonomous Region, for example, many transportation related projects, including airports, railways and railway container centers, have recently been approved thanks to the State Council’s effort to develop a new silk road. The government of Xinjiang also plans big industrial parks to support export-oriented industries such as textiles.

The new silk road concept envisions making Xinjiang a financial hub in Central Asia by connecting it with the Trans-Asian Railway, which runs between Asia and Europe.

All these development plans demand huge volumes of greases and lubes, said Guan.

Other speakers at the conference, which was organized by CBI Biz, said that change in the auto industry offers opportunities, especially for grease suppliers.

In April, the first batch of Tesla Model S electric vehicles, priced at CNY734,000 each, were delivered to nine Chinese buyers. Tesla Chief Executive Officer Elon Musk said then that China is a very important market for Tesla, and he plans heavy investment in the country, including construction of charging stations starting in Beijing and Shanghai.

In February, Chinese auto company Wanxiang Group also showed its determination to enter the electric vehicle market by acquiring the U.S. electric vehicle manufacturer Fisker. Electric vehicles require more grease than conventional vehicles, conference speakers said.

In China, the market for high quality greases is dominated by multinationals and big, state-owned Chinese companies. But competitive private manufacturers like Nanjing-based Lopal are catching up, too. In March, Lopal started the construction of three production units that will double its grease capacity to 9,000 tons per year.

For the three big state-owned companies – CNPC, Sinopec and CNOOC, the future lies in reform, Minshengs Guan said.

Reform in state-owned companies, as required by President Xi at the National Peoples Congress, is the primary job in 2014, and part of reform is to attract private investment.

In February, Sinopec announced its reform plan, and by the end of March it transferred its entire oil retail network – including pipelines and over 30,000 fuel stations and convenience stores – into its sales arm, Sinopec Sales Company. Sinopec President Fu Chengyu previously told investors that SSC is open to many opportunities, including use of private and foreign investment, and may even conduct a public stock offering. In 2013, retail business contributed CNY1.5 trillion of Sinopecs entire operating income, the most among all of its business units.

At the CBI conference, Zeng Haiying, base oil manager at Sinopec Lubricant Company, told Lube Report Asia that SLC is also preparing for an IPO, although the exact schedule has not yet been set.

Its not clear if we will accept foreign investment, but after the IPO we will operate as an independent company, she said.

SLC develops, produces and sells lubes nationwide. It has five base oil plants producing API Group II base stocks in Yanshan, Gaoqiao, Maoming, Jingmen and Jinan, and their combined capacity is scheduled to reach 1.05 million t/y by the end of 2015.

With clients demanding higher quality lubes, Zeng said, it is essential to improve base stock quality.

In 2013 we issued our own base stock standard, which is stricter than API standards, to provide the quality required by our OEM clients, including Toyota, Nissan and GM, she said at the conference.

Related Topics

Asia    Business    China    Finished Lubricants    Region