ExxonMobil supplanted Shell in 2005 as the leading global marketer of automotive and industrial lubricants. Shells and ExxonMobils market share in China was separated by only one percentage point in 2005, according to Kline, but with the joint venture in China, Shell has widened the gap to about four points. The size of Chinas market meant that put Shell back into the number one position globally.

The Chinese market for finished lubricants stands at 5.1 million metric tons, or about 13 percent of the global total, according to preliminary estimates from Klines Business Opportunities and Threats in the Dynamic Chinese Lubricants Market, 2006-2011. Bill Downey, Kline vice president, said that the Chinese national lubes market will continue to grow by 7 to 10 percent over the next five years.

Geeta Agashe, director of Klines Petroleum and Energy Practice, told Lube Report that the industrial and commercial automotive segments make up the largest part of the lubricants market in China. The consumer automotive segment is expected to enjoy a 10 percent average annual growth, though from a smaller base, as it accounts for only 10 percent of the total Chinese market, Agashe said. Both the industrial and commercial automotive segments are predicted to enjoy a 7 percent growth, and they[each] account for 45 percent of the total.

According to Kline, Chinas national oil companies PetroChina and Sinopec account for about 65 percent of the country’smarket. Prior to Shells acquisition, the third leading company in Chinas finished lubricants market was Beijing Tongyi. In 2005, Shell ranked number five in China behind the two Chinese national oil companies, Beijing Tongyi and ExxonMobil. Shells majority stake in Beijing Tongyi makes it now the third-largest marketer of finished lubes in China, with about 10 percent of the market share. Shell expects to maintain both Shell and Beijing Tongyi brands in China.

Kline said the deal provided a major increase in distribution opportunities. Beijing Tongyi has about 2,000 distributors and 90,000 retailers for its products, whereas Shell only had access to 350 distributors and 20,000 retail outlets before the deal.

Beijing Tongyi, known to many as Monarch, was the only real significantly sized acquisition candidate in China. Certainly it was the only one that would have allowed Shell to make the market share move that they did, said Downey. But we dont think Shell made the move for global share. It was for the distribution network, which gives Shell access to a number of different regions within China that it didnt have before, including some middle-tier cities that are the size of major metropolitan areas in the U.S. and Europe.

Agasha said that no smaller Chinese petroleum companies are considered likely acquisition candidates at this time. The smaller companies active in China seem to be MNCs [multinational corporations] or Japanese companies primarily servicing the factory-fill segment, she said.