BP, China Automaker Link for Lubes


BP, owner of the Castrol brand, and automaker Dong Feng Group last week unveiled an agreement to form a blending and marketing joint venture to supply Chinas growing lubricant market. Officials called the partnership a good combination of Castrols technology and branding power and Dong Fengs access to market.

The joint venture will combine Castrols widely recognized advanced technology, management and marketing expertise with Dong Fengs strengths, which include a highly educated workforce, safety awareness and excellent logistics management, said David Baldry, group vice president of lubricants for Castrols parent company, BP.

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The new company, Dong Feng-Castrol Lubricant Co., was seeded with 120 million yuan (U.S. $14.5 million). BP owns a 50 percent stake in the company, with Dong Feng Motor Corp. and Dong Feng Automobile Co. owning shares of 20 percent and 30 percent, respectively.

The joint venture plans to build a blending plant with annual capacity of 50,000 metric tons in Wuhan, the largest city in central Chinas Hubei Province. Dong Feng is headquartered in Wuhan and has facilities there that manufacture passenger cars. Dong Feng is Chinas third-largest automaker, with production divided approximately evenly between trucks and passenger cars. It has manufacturing joint ventures with several foreign original equipment manufacturers, including Honda, Nissan, Kia and Passat.

The blending plant is scheduled to open in 2006 and will make automotive lubricants and antifreeze products for factory fill and for service fill at workshops franchised by Dong Feng. Officials said it will make products for the full range of Dong Feng vehicles and that they intend the joint venture to be a sole supplier.

Chinas lubricant market is the second largest in the world and the fastest-growing of large markets. Cleveland market research firm Freedonia Group recently predicted that the countrys lube demand will increase an average of 6 percent per year through 2008. Vehicle sales in China are growing several times faster.

Castrol officials said the joint venture will make motor oils that fit in the middle and upper levels of the quality spectrum for Chinas market. A spokeswoman who asked not to be identified said the companys passenger car motor oils will be equivalent to API SL, SJ and SG, while diesel oils will be equivalent to API CH-4, CF-4 and CD.

BP has operated in China for years and is one of the countrys largest foreign investors. Observers noted that Castrol has had a blending plant near Hong Kong since 1996, but called the joint venture a good way for it to gain a bigger foothold in the market.

Clearly BP Castrol is securing access to the initial fill volumes, together with the ability to be the first brand visible to car and truck owners, with recommendation from the manufacturer, said one analyst, who spoke on condition of anonymity. This will lead to strong brand development potential with consumers.

But how does it position them with the other auto manufacturers? Will it limit their potential to supply similar initial fill volumes to other producers?

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