Kline: Competition Heats Up in China


As China solidifies its place as the worlds largest lubricant market, that market will become more competitive, see faster growth in inland areas, and continue shifting toward higher quality products, Kline & Co. consultants said last week.

Speaking at an Oct. 29 webinar, Engagement Manager Jeanne Huang said China consumed an estimated 7.7 million metric tons of lubricants in 2013. The United States-based firm also forecast that demand will grow at a cumulative average annual rate of 2.9 percent, to 8.9 million tons by 2018.

That should be enough to bring about consensus that China would be the largest lubricant-consuming country. Steady growth in recent years brought Chinas lube demand close to that of the U.S., which had long been the biggest market. Analysts have been divided the past few years about which market is biggest. U.S. demand is nearly flat.

Huang said lubricant suppliers in China can be divided into three groups: local integrated oil companies, which consists of two government-owned giants – Sinopec and PetroChina; multinational suppliers; and domestic non-majors. Until now, she said, the groups have mostly focused on different parts of the market.

Sinopec and PetroChina have a combined 39 percent share of the market and have focused on supplying price-competitive, medium-grade products, largely to state-owned end users such as railways, steel mills, mines and bus systems. Multinationals hold 32 percent of the market, including a disproportionate share of top-tier automotive lubes. Local non-majors account for 29 percent of demand and supply largely low-tier lubricants, as well as process oils.

Companies in all three categories are beginning to push those boundaries, Huang said. Multinationals are starting to also target the middle tiers of the market, while the local majors are improving their technology and striving to sell higher-tier products. In addition, multinationals and local majors both want to directly supply more large accounts.

So in the future there will be more competition between the international companies and local majors in both the upper and middle tiers, Huang said. She noted that some smaller local suppliers are also trying to sell higher-tier products.

Growth in lubricant demand, like economic activity in general, is shifting toward inland areas of the country, Huang said. Until now, economic growth concentrated in coastal areas, which account for 40 percent of the nations population but 55 percent of gross domestic product and 51 percent of lube demand.

But the government has adopted a number of policies to spur growth in the middle and inland regions. Huang noted that the Economist Intelligence Unit predicts China will have 13 urban centers with populations of at least 10 million by 2020, seven of them located in inland areas. A large middle class, with higher levels of consumption, has started to emerge in inland areas, which are also expected to become popular bases for industrial production, Huang said. Both trends should lead to increased lubricant demand.

The Chinese lube market has already been shifting toward higher quality products, and that trend should continue in both the automotive and industrial segments, Huang said. Automakers are pushing for lubricants that will help improve fuel economy, assist in compliance with air emissions restrictions and allow for longer drain intervals. The effects are reflected in the grades of engine oil that the country consumes. Last year, 46 percent of engine oils consumed by the markets consumer segment were equivalent to API SL or better, Huang said. By 2018, Kline predicts that number will increase to 66 percent.

The industrial segment is also experiencing product evolution, Huang said. For example, end users of hydraulic fluids are demanding good performance under extreme operating pressures and temperatures. Factories and other industrial enterprises are increasingly lubricating gears with heavy-duty industrial gear oil with good extreme pressure performance and resistance to oxidation.

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