In contrast,an official with Sinopec, Chinas other government owned petroleum giant, said itis eliminating three brandsand in 2004 will forge ahead with just one brand, Great Wall. Sinopec plans to take the superior position with its new brand image and new, competitive management structure, he said.

The March 4 presentations by the two state-owned companies were among the most closely monitored talks at theconference. The conference focused on the Chinese lubricant market, and PetroChina Lubricant President Liao Guoqin showed why. At nearly 4 million metric tons in 2002, the country already accounts for 11 percent of worldwide lube demand, she said, and her company forecasts that volume to grow at an annual rate of 3.2 percent from 2003 to 2005.

Moreover, Liao said, in terms of revenue the market is projected to grow at a 10 percent clip over the same period. From 2005 to 2010, the rate of volume growth will slow to 2.3 percent, while sales revenues should continue growing at a healthy 4 percent per year.

Liao said PetroChina currently has 27 percent of China’s total finished lubricant market (based on volume). Sinopec has 23 percent, local companies have 35 percent, and international companies and imports account for the remaining 15 percent.

Liao said growth will be fastest in the automotive lube segment, thanks to blistering growth in passenger car ownership. Auto production increased approximately 40 percent in 2002 and government forecasters expect sustained growth of 20 percent to 30 percent per year for the next four years. As a result, demand for automotive lubes is expected to rise from 2.1 million tons in 2002 to 3 million tons by 2010.

PetroChina expects industrial lubricant demand to remain essentially flat at 1.1 million tons over that time period, and demand for special lubricants – such as rubber processing oils and transformer oils – to rise slightly to 760,000 tons.

It is little wonder then that the two state-owned companies – along with other domestic and foreign lubricant marketers – are devoting much of their attention to the motor oil market. Both PetroChina and Sinopec have talked at length the past couple years about their efforts to grab bigger shares of what they refer to as the high end of the motor oil market, which accounts for most of the segments profits and which has been dominated by foreign companies.

According to Liao, automotive oils make up 54 percent of the volume of lubes sold in China, but account for 63 percent of the revenue. The profits, she said, come mainly from high-grade automotive oils. In the passenger car motor oil market, high-quality refers to oils meeting API-SG or better. In the diesel oil market it refers to oils of at least API-CD quality.

Both companies have begun devoting much more attention to marketing – activities that they neglected in the past, according to Zhang Chunhui, director of Sinopecs Great Wall Lubricating Oil Application Research Center.

Because these companies are fundamentally subsidiaries of refinery marketing operations, their main business is to sell base oils, Zhang said. They are generally lacking business experience in marketing, particularly in the high end of the market.

Liao said PetroChina is working to improve recognition of and the reputation of its flagship motor oil brand, Kunlun, but that it will also continue selling products domestically under the Feitian and Qixing brands.

Co-existing with the Kunlun brand, [they] can be of mutual benefit to satisfy more customers’ requirements, she said. By 2005, PetroChina plans to take 35 percent of China’s high-grade engine oil market, and to increase that share to 38 percent by 2010.

Taking the opposite tack, Zhang said Sinopec plans to eliminate the Hai and Nanhai brands this year, after folding the Yiping brand last October. That will leave the company with just one motor oil brand, Great Wall, by the end of 2004. In thefuture, China’s integrated lubricant companies will have the controlling market share, and will break the control of thehigh-end market by foreign brands, Zhangsaid.

Zhangacknowledged thatChina’s lubricant businesses do not currently measure up to Western standards of business management, but he said that significant consolidation and restructuring will continue.