Elbows Fly in China’s Lube Market


BEIJING – Chinas two top lubricant companies claim 60 percent of that countrys growing lube market, and theyre gearing up to take even more market share from the multinational brands and smaller local players. At the same time, the multinationals will advertise their lubes heavily, to build brand awareness in advance of the 2007 opening of Chinas gasoline and diesel fuel market.

Song YunChang, general manager of Sinopec Lubricant Co., told last weeks Fuels & Lubes Asia conference here that the future is bright for Chinas lubricants industry, with domestic and foreign brands becoming more equal both in terms of quality and branding strategies.

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The Chinese lubricants market, Song said through a translator, is characterized by intense competition, by consolidation, and by reform and brand consolidation in the two state-owned lube companies, Sinopec and PetroChina.

China consumed more than 4.6 million metric tons of lubricants in 2004, up from 3.65 million tons in 2002. Sinopec and PetroChina share 60 percent of that market; multinational brands – traditionally the suppliers of higher quality, higher profit lubes – have 19 percent; and about 2,000 local private blenders supply the remaining 21 percent. Recently, there were as many as 4,500 independent blenders, Song said, estimating that today there are about 2,000. There will be fewer than 1,000 by the end of the year, he predicted.

Sinopec and PetroChina have consolidated all their lube brands into one each: Great Wall for Sinopec, Kunlun for PetroChina. These brands, together with Tongyis Monarch brand, have become the top three domestic lubricant brands in the past two years.

Quality is not enough to sell lubricants, Song said. There is now a heavy emphasis on building brands and upgrading brand images. Five years ago the multinational brands dominated. Now the local players compete.

Television, radio, exhibitions and sports stadiums are major outlets for lubricant advertising direct to consumers. The multinationals began TV advertising in 2004, said Song. They want consumer awareness in advance of the 2007 opening of our gasoline and diesel market.

Thanks to quality improvements, including the use of higher grade base oils, the perceived quality of domestic lubricants has improved greatly in China, said Song. But more and more foreign lubricant brands are entering China daily, because more automakers are coming. This makes the local players and the traditional multinationals feel more pressed.

In the past, we complained about the marriage between the automakers and [foreign] lubricant companies. Now we need to understand that we can [compete for] business with the automakers.

Looking forward, Song predicted that more money will be invested to upgrade Chinas base oil manufacturing which, at 4 million tons per year, does not meet local demand. Likewise, more money will go into research and development of higher quality lube products for both the automotive and industrial sectors. Lubricant industry chains will be developed for high-end, lower volume products, and oil companies will try to launch integrated services, adding more value to their lube products.

The future isnt without challenges, however. The Chinese government is trading technology for our markets, said Song. But what real technology has the auto industry brought China? We open our markets, but dont get the technology. In the oil industry, were setting up joint ventures to produce additives. We want the technology. Local advantage and hard work will result in success.

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