Flat Market to Alter Chinas Supply


SINGAPORE – In addition to flat demand that should ratchet competition, Chinas lubricant industry is headed for structural changes that could significantly alter how marketers supply their products, said an analyst at an industry event here last week.

By 2020, lube consumption in China is expected to slip to 6.9 million metric tons, down from 7 million tons in 2015, Steven Zhang, project leader at Kline & Co., said at a May 16 seminar ahead of the ICIS Asian Base Oils & Lubricants Conference.

The countrys latest five-year plan (2015 to 2020) will impact the industrial lubricants market, he said, noting that it aims to reduce surplus capacity in many industries, inducing a temporary decline in manufacturing and production. Zhang added, though, that this can be offset by increased spending on infrastructure.

Under the initiative, the government encourages the replacement of obsolete equipment with more modern equipment that can operate at higher temperatures with heavier loads. These high-speed machines employed in the manufacturing sector will have a higher utilization rate with excess manufacturing capacity being reduced, he said. Thus, there will be increased demand for hydraulic fluids with good performance under extreme conditions and gear oil with extended drain intervals.

The automobile lubricant market will see many changes through 2020, according to Zhang. New car sales have been growing at an average rate of 11 percent annually since 2010, reaching 18 million units in 2015. However, apart from in Tier-3 and Tier-4 cities, the growth is expected to slow down in the next five years.

Meanwhile, National V fuel emission standards for passenger and commercial vehicles were implemented in Beijing and Shanghai in 2013 and are scheduled to be introduced in other cities by next year. This means that high-performance lubricants are expected to grow quickly in the future, said Zhang. Engine oils meeting API-SM performance levels and above will increase from about 30 percent of the consumer lubricant segment in 2015 to 50 percent in 2020, while commercial lubricants in the CI-4 and later categories will increase from 15 percent in 2015 to 40 percent in 2020.

Automobile [original-equipment-manufacturers] are the primary drivers of lubricants with better fuel economy that meet higher emission standards and have longer service lives, he added.

As the Chinese government focuses on structural reforms targeting gross domestic product growth of between 6.5 percent and 6.9 percent, the economic slowdown increases competition and eliminates weaker players, making the lubes market more consolidated, said Zhang.

In addition, Alternative channels are expected to grow significantly at the expense of distributors in the future, making the distribution of passenger car motor oils more efficient, forecast Zhang. He expects direct sales from PCMO blenders to increase from 32 percent in 2015 to 55 percent in 2020, while distributors share will slump from 68 percent in 2015 to 45 percent.

Tie-ups with car insurance companies, car-sharing platforms and OEM-owned chain workshops offer new marketing channels in addition to increasingly viable e-commerce and online-to-offline services. O2O platforms in automotive aftermarkets were very hot last year, said Zhang. Especially in the PCMO market, this poses a challenge to the market position of traditional lubricant distributors.

For example, he said, SAIC Motor Corp. merged with or bought and converted chain stores to attract car owners back for their post-warranty services. These garages provide more transparency in price and service and they sell other brands as well, he added.

Similarly, car-sharing platforms may provide more competitive prices when drivers use their workshops, which lubricant suppliers can sponsor, said Zhang.

As the lubricant distribution network becomes more efficient, it will increase the competitiveness of blenders, as well as have a positive impact on the usage of high-end base oil in China, he said.

Although overall base oil demand in China will decline slightly through 2020, API Group III and synthetic and biobased base stocks will find more applications in China and grow quickly, added Zhang.

Klines most recent data showed local major players claiming 40 percent of the lubricants market, local minor players holding 30 percent, and multinational companies and foreign players taking the remainder.

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