LONDON – Multinational base oil and lubricant companies eyeing long-term business opportunities in Chinas growing market face challenges that include increasing domestic competition as well as government policy changes.
Although China is now the leading trading nation in the world and has overtaken Japan as the second largest economy, the government intends to steady growth at a consistent – and manageable – 8 percent annual growth range.
These are some of the key points in a session, Understanding the Changing Lubricants Market in China, presented here last week during the 16th ICIS World Base Oils and Lubricants Conference.
One of the major shifts in China, according to Geeta Agashe, vice president, Energy Practice, Kline and Company, is that the country is focusing its internal expansion inland, rather than in its richer coastal provinces that have served as its economic engine. In her presentation, based on a Kline 2011 survey of the China market, Agashe said the construction of new inland mega cities will offer both challenges and opportunities for multinationals to serve an emerging industrial and consumer market.
Chinas lubricant market stood at 7 million tons in 2010,and Kline projects a compound annual growth rate at 5.9 percent through 2015.China will see long-term growth in its consumer and commercial automotive and industrial markets through 2020. Drivers include a growing middle-class population (especially in the interior regions), and more autos, noted Agashe.
Agashe explained that the government is encouraging coastal companies to relocate inland to provide jobs for people who historically would have migrated to coastal cities for employment. And as a new middle class emerges in the interior cities, demand for higher quality products will increase.
However, Agashe cautioned that multinationals will face stiff competition from domestic suppliers as they improve their lubricant quality. She noted that state-owned companies such as PetroChina and Sinopec will be an increasing force to be reckoned with as they continue to expand and focus on higher-quality products.
Further, the government will make it more difficult for multinationals to gain access to its markets if they do not use superior processes and technology in their China initiatives.