In this year, maybe more than most, developments in Asias lubricant industry did not lend themselves to simple summary. It was difficult to find trends that applied evenly across the region or that progressed in straight lines. It could not be said, for example, that the main markets grew at close to the same pace.
Instead, volume demand in China remained flat, while in India it grew at a healthy rate. One of two big mergers announced in Japan was completed, but the other was not. Southeast Asian countries made progress eliminating some barriers to trade but gave back ground on others.
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One of the few generally common themes was that product quality rose in China and India along with other developing markets. That trend is likely to continue thanks to work like that being done in Japan to define JASO standards for engine oils that boost fuel economy.
It is clear that Asias lube markets are evolving fast and that interest in them remains strong. Following are some of the top stories from Lube Report Asia in 2017.
China and India Keep Evolving
Lubricant consumption in China, the regions largest market, was essentially flat for the third consecutive year, but demand in India, the next-largest market, increased at a healthy rate. Lubricant quality is rising in both markets, improving prospects for better profit margins. One analyst predicted those trends will continue for the next several years.
The slowdown of growth in the Chinese market does not appear to have dimmed interest in investing there. Petronas, GS-Caltex, Sinochem, BP, Dongfeng Motor Corp. Lubricating Oil Co., Qingdao Copton Technology Co., and Dongguan Amer Lubricant Technology Co. were among the suppliers that opened or announced plans to build blending plants this year.
Competition Rises for Base Oils
The Pacific Rim has long supplied significant volumes of Group II and III base stocks to other parts of the world, but it encountered increased competition from the Middle East in 2017. The latter region opened several large plants in recent years (and has more capacity in the pipeline) and has aggressively pushed barrels into North America, Europe and South Asia – markets where Asian refiners have well-established footholds.
Asian refiners continue to add capacity, though. Hainan Handi Sunshine Petrochemical Co. said it was moving ahead with a 1.5 million metric tons per year expansion at it Group II/III plant on the island of Hainan, though the project has been delayed in the past and some observers raise doubts about its announced size. ExxonMobil announced an expansion at its Group II plant in Jurong, Singapore. Fortunately for these and other refiners in Asia, the regions own demand for Group II and III is rising.
Japanese Mergers: 1 Done, 1 Maybe
Japans lubricant market – Asias third largest – was supposed to have seen two blockbuster mergers in 2017, but only one came to fruition. In March, JX Nippon Oil & Energy and TonenGeneralsealed a union of companies that supplied a combined 49 percent of the nations finished lube demand. Idemitsu Kosan and Showa Shell Sekiyu K.K., the second- and fourth-largest suppliers, had also agreed to unite, but the deal was held up by opposition from relatives of Idemitsus founder.
In July a court gave Idemitsu permission to sell new shares of stock – a move that would dilute holdings of the opposition group and presumably clear the way for completion of the merger. Idemitsu and Showa Shell recently said they intend to consolidate key operations in the spring, but the founders family said it will try to acquire more stock shares as it continues fighting the merger.
Trade Barriers in Southeast Asia
The Association of Southeast Asian Nations resolved in 2015 to establish the ASEAN Economic Community, a trade bloc that would eliminate tariffs charged on many types of products, including lubricants, traded between member states. That process is scheduled to be completed in 2018, and progress has been made, but at the same timemembers are finding new ways to protect domestic products.
Indonesia may best encapsulate the conflicting actions. The government announced early this year that it wanted to help boost lubricant exports, which traditionally have been very low. In 2016, though, the same government adopted a national standard for lubricants, a move that some observers viewed as protectionism. The combined capacity of blenders in Indonesia far exceeds the nations demand for lubes, even before taking into account imports, which supply about a third of demand.
Fuel Economy Focus for JASO
Japanese automakers took two significant steps this year to improve fuel economy through lubricant standards. In April, JASO M355 was amended to incorporate a category for fuel economy oils – the first attempt by the Japanese Automobile Manufacturers Association to add fuel economy performance to its heavy-duty oil standard.
JAMA also resolved to develop a specification for SAE 0W-8 passenger car engine oils – something that has not been done yet by any of the worlds main developers of industry performance specifications. Japanese OEMs, particularly Honda, have pioneered the use of very-low-viscosity engine oils. Japanese carmakers are members of the Independent Lubricant Standardization and Approval Committee and generally work through that United States-based group to develop specs for passenger car oils. In this case, Japanese companies believe ILSAC may not have a 0W-8 spec before the mid-2020s, so they set out to develop one of their own by 2019.
JASO standards are used throughout much of Asia thanks to the popularity of Japanese trucks and motorcycles.