Billion-dollar Lube Market Grows 10% a Year


Chinas burgeoning economy is producing more goods and people for trucks and buses to carry, and that should open the way to greater opportunity for marketers of heavy duty motor oils.

That is the conclusion of a new study from Kline and Co. In a statement released last week, the consulting firm said Chinese demand for on-highway commercial automotive lubricants is growing 10 percent annually and will continue to do so for the next five years. The firm, which is based in Little Falls, N.J., also predicted a shift toward higher-performance products.

As the economy continues to grow, so does the need to move goods and people, said Frans van Antwerpen, project manager for Klines Petroleum and Energy practice. More trucks and buses will be put on the road, all of which will require HDMO.

Klines study, Business Opportunities in the Chinese Lubricant Market, 2004-2009, pegs current demand for on-highway commercial lubricants at 927,000 metric tons, valued at $1.1 billion.

According to the Associated Press, Chinas government said yesterday that Chinas economy grew at an 11.3 percent clip in the second quarter, its fastest growth in a decade. Its not surprising that truck and bus traffic would increase during a period of such expansion. But Kline officials said the types of vehicles and lubricants used is also changing.

Buses in China are generally smaller than in Europe and the United States and have typically been gasoline-powered, said Li Wang, director of the firms office in Shanghai. But these small buses are now being replaced with larger, diesel-powered buses to accommodate more passengers more efficiently. This is driving a shift from passenger car motor oil to heavy duty motor oil in the commercial on-highway sector across the country.

Also, the Chinese government is pushing for a better fuel economy and lower emissions, and better oil quality is one way to accomplish this.

Currently, domestic oil companies dominate the commercial segment. Sinopec is the market leader, supplying 32 percent of the segments volume. PetroChina and Tongyi Beijing Petroleum Chemical Co. follow with 13 percent and 10 percent, respectively.

But Kline said the industrys trends favor multinational marketers because domestic companies generally are not prepared to make higher-performance products.

[M]ultinational lubricant companies like BP, Shell, and ExxonMobil have experience in meeting [higher-performance] lube requirements, said Bill Downey, vice president and head of the Petroleum and Energy practice. They also have existing relationships with foreign truck original equipment manufacturers for factory-fill, and the OEMs are the ones who specify the quality the consumers should use. So the oil majors should be looking to protect their advantage by nurturing their relationships with the international OEMs.

Before they are ready to compete with multinationals, Kline said, Chinese companies will have to use more Group II base oils and shift their motor oil offerings from mono- to multigrade products.

Klines study covers all segments of the Chinese lube market. It predicts that demand for off-highway commercial lubricants will grow significantly slower than the on-highway segment – an average of 4 percent per year. Although construction activity is also booming, the firm explained that the industry is introducing bigger machines that work much more efficiently.

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