Competition appears to be heating up in South Korea’s lubricant market with Hyundai Oilbank’s entry into the scene. The company, which focused on oilrefining for the past 50 years, stepped into the lube market in September by launching XTeer brand engine oil.
Hyundai Oilbank is the fourth large Korean refiner to enter the finished lubricant market, joining SK, S-Oil and GS-Caltex. Even before it ramps up, there are signs that domestic and foreign suppliers are taking steps to protect their market shares.
Launching a lubricants business is a big milestone for Hyundai Oilbank, which was founded as Kukdong Oil Refining in 1964. Now a subsidiary of the Hyundai conglomerate, it has prepared for the launch ofXTeer since 2011 and finally began to produce the eco-friendlypassenger car motor oil six months ago. The company set a sales target of more than 25,000 metric tons per year.
Hyundai Oilbank said it also intends to begin supplying industrial lubricants, although it has not announced a timetable for that release. With Anglo-Dutch energy giant Shell it formed a joint venture that is building an API Group III base oil plant in Daesan, South Korea.
Officials say the lubricants business will really get off the ground after the base oil plant begins production, which is scheduled to happen in the second half of this year. That will allow Hyundai Oilbankto supply its own base oil.
Officials have vowed that Hyundai Oilbank will be a significant player in the market. We will be the consumers favorite, [building on] our technology and the brand name Hyundai, Executive Director Byeongsup Kim said. Observers say the company can gain market shareby supplying sister companies like Hyundai Heavy Industries, Hyundai E&C,Hyundai Motor Co. – all of which require significant volumes of lubes.
At the moment, the company is still recruiting dealers to sell its engine oil at car repair centers and gas stations nationwide. Jongchan Lim,executive of the Korea Lubricating Oil Industry Association, told Lube Report Asia that XTeers presence in the market has been imperceptible so far.
But existing companies seem to be already protecting their turf. Foreign suppliers in the market have staged sales promotionsin the wake ofXteers launch.ExxonMobil gives couponsto repeat buyers and website visitors. Shell offers work jackets with its logo to car repair shops that purchase in bulk. Sources say some domestic companies have discounted prices.
Developing a lubricants business is part of the companys effort to extend its operations beyond refining and fuels. Lubricants and base oils have been cash cows for South Korean refiners in recent years, contributing about half of their operating profits.
Its no surprise that existing players would protect their stakes in the market, given the markets scant prospects for growth.
Real [opportunity] is in the global market rather than domestic market, Lim said.South Korean lubricant exports are estimated to be valued at 1 trillion won (U.S. $936 million) annually.