Sinopec Sees Profits, Competition Rising


With Chinas major lubricant suppliers raising prices, and raw material prices and supply stabilizing, Sinopec predicts growing profits for Chinas lubricants sector. At the same time, fierce competition in the countrys high-end lubricant market pressures smaller players, forcing small blenders out of the market. Asias largest lubricant supplier, Sinopec is rebranding its lubes as it expands beyond Chinas borders and nearly doubling its grease production.

Sinopec Deputy General Manager Li Liangyao provided a thumbnail analysis of Chinas lubricants industry at the ICIS Asian Base Oils & Lubricants Conference in Kuala Lumpur, Malaysia, in June. Speaking Mandarin with simultaneous translation to English, Li said that Chinas largest lubricant companies, including Sinopec, PetroChina, ExxonMobil and Shell, have established a new price system.

With advantages of brand, management and resources, large-scale lubricant companies are now raising prices, Li said, expanding [their] profit space.

Shells acquisition last year of Tongyi Lubricant Co. illustrates the difficulties that face independent lubricant firms, said Li, predicting that Chinas mid-scale independent lubricant companies … will be under the banner of large petroleum companies.

Because of recent tight raw material supply, particularly last years base oil shortages, small blending plants have withdrawn from the market. Their market share is seized by large companies like Sinopec and PetroChina, said Li. At the same time, he noted, relief from supply shortages can provide opportunities for some small and mid-sized lubricant firms to reposition themselves.

Li predicted that base oil prices will drop after 2007, assuming stability in crude oil pricing. Li anticipated a coming surplus of API Group I base stocks in China, while API Groups II and III base oils will continue to demand relatively high prices.

2007 will be good for the additive industry, Li continued. Stable crude oil prices and high lubricant profitability will ensure rational profit space and continuing investment in technology by additive suppliers in China.

The high-end lubricant market will see more fierce competition, putting more pressure on small players, Li contended. To lower their risks, he said, lubricant enterprises must strengthen their strategic relationships with related industries.

Turning to Sinopec Lubricant Co., Li said it is the fourth largest lubricant manufacturer in the world, and largest in Asia, whose 11 manufacturing facilities have combined capacity to product 1.5 million metric tons per year of lubricants. Sinopecs total sales for 2006, said Li, were 1.4 million tons, equivalent to a third of Chinas total lubricant demand.

Sinopec has adopted a new international branding strategy for its expansion into the Asia-Pacific market. Sinopec will be the brand for all the companys products, including lubricants, petrol filling stations and chemicals, Li said. The Great Wall brand will continue to be used domestically for lubricants. Sinopec plans to expand its lubricant advertising campaigns, focusing on its sponsorship of the 2008 Beijing Olympics and on its role in Chinas aerospace program.

In terms of product strategy, said Li, Sinopec will emphasize automotive lubricants, greases, transformer oils and marine lubricants. Current annual grease sales are 80,000 t/y, said Li. Sinopec is currently building a new grease plant at a cost of RMB 200 million (U.S. $26.4 million), that will boost grease production to 150,000 t/y by 2008.

Sinopec Lubricant Co. will then surge forward to become the largest manufacturer and service provider of lubricants in the world, said Li.

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