China’s Economy Spurs Calls to Adapt


SHANGHAI – Chinas slowing economy brings the domestic lubricant industry enormous challenges, including a decline in traditional manufacturing industries and a more competitive landscape for both base stocks and finished lubes.

But that does not mean this vast market will be devoid of opportunities, an industry observer told attendees of Enmores China Lubricant Market Focus here two weeks ago. The key for the lube industry from now on is that companies will need to be nimble enough to adapt to the economys new directions, said Professor Hu Haiou of Shanghai Jiaotong University.

One Belt, One Road is an important strategy, Hu said, referring to a framework encouraging economic development cooperation throughout Eurasia, as well as further urbanization, which involves huge amount of infrastructure construction projects. The two are among the important strategies to guide Chinas future development. He added that these strategies should help revive some struggling traditional industries, such as steel and cement.

Chinas steel industry reported continuous, massive losses in recent years. In late April it suffered another blow when the European Union began investigating allegations that China is dumping rebar in the EU. The cement industry is also suffering because Chinas real estate market is slowing.

One Belt, One Road was initiated by the Chinese President Xi Jinping in 2013 and includes two main components. One is to build an economic development corridor dubbed the New Silk Road across Northwest China to Central Asia. The second component, referred to as the Maritime Silk Road, aims to foster trade with Southeast Asia, Oceana and Africa. China expects One Belt, One Road will create high value-added industries and more job opportunities.

Indeed, in Foshan, Guangdong province, manufacturing and exporting industrial robots will be the focus of the local economy by the end of 2025, according to the local government.

Guangdong province may still be the countrys biggest manufacturing site, but in the past years many manufacturers were moving from coastal areas to less expensive inland areas, such as Henan and Sichuan provinces.

This kind of relocation could make problems for small lubricant companies supplying them because they do not have the resources to invest in geographical expansion, said Wang Xiaolong, president of Amer Lubricant Technology, a Dongguan, Guangdong, manufacturer of industrial lubricants, including metalworking fluids, as well as automotive lubes.

To serve our remote clients in the best and most cost-efficient way, we have to provide versatile, multifunctional lubes that demand little service, he said. For example, Amer Lubricant has developed a multifunctional metal cutting fluid that can be used with most types of metals, as well as a super hydraulic oil that is compatible with different major hydraulic equipment brands used in China.

Wang also sees opportunity in Chinas adoption of stricter regulations on environmental protection, as well as the growing demand for safety and health from a younger, well-informed generation of workers.

To make it easy for our clients, we produce zero-discharge metalworking fluids and industrial lubes with little odor and absolutely no banned substances, Wang said.

Then there is the continuously growing domestic auto population, which numbered 264 million vehicles by the end of 2014, according to Chinas ministry of public security. Analysts say the nations demand for cars will continue to increase as family incomes rise.

It all sounds positive to lube suppliers, but does it mean the same for base stock producers? The answer is probably a little disappointing, said Zeng Haiying, base oil manager at Sinopec.

Group II base stocks will continue to feel price pressure due to oversupply from both domestic and foreign producers, she said, adding that South Korea, which is already the top foreign supplier of Group II base oils in China, will likely get more advantage, thanks to the China-South Korea Free Trade Agreement, which is due to be finalized by June. Under the agreement, China will gradually lift tariffs on base oils and lubes from South Korea in 15 years.

But still, base stock producers have to plan for the long run and continue to evolve with lube producers, Zeng said.

Multi-grade eco-friendly lubes with extended drain intervals and low viscosity are the future for lubes, so base stock producers need to develop the matching base oils accordingly, she said.

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