While many of the worlds manufacturers cast a suspicious eye over new technologies and the sizeable investments that often accompany them, China seems to be racing to embrace smart factories, connected manufacturing and other ideas that fall under the umbrella of Industry 4.0-and that is already having consequences for its metalworking fluids sector.
As part of its Made in China 2025 initiative, the country is building smart factories in high-value-added industries including automobile and medical device manufacturing. Smart factories employ technology such as artificial intelligence, robotics, analytics, big data and the Internet of Things. They can run with little human involvement and have the ability to self-monitor and self-correct as needed.
The trend will generate opportunities for metalworking fluid suppliers, said Carlos Barrasa, Castrols regional vice president in China. Existing equipment is being upgraded or replaced by more powerful and advanced machinery that demands higher performance metalworking fluid, he told LubesnGreases.
China accounts for 24 percent of global industrial lubricant demand, according to Castrol, which includes metalworking fluids. According to Annie Jarquin, a director in Kline & Co.s energy consulting practice, metalworking fluids made up about 12 percent of Chinas 3.3 million-ton industrial lubricants market in 2017, making it the largest metalworking fluid market in the world.
Large, financially secure, state-owned manufacturers are typical of the type of company implementing new manufacturing technologies. Among them are Zoomlion Heavy Industry Science and Technology, a Changsha, Hunan province-based construction machinery manufacturer that started making tower cranes at its new smart facility in January in Changde, which is also in Hunan. The facility, which cost about 780 million Chinese yuan ($116.3 million), has 12 autonomous production lines and over 10,000 sensors, according to the company.
In December, Chinas major automaker GAC Group completed the construction of a smart facility in Fanyu, Guandong province, to manufacture full-electric vehicles. With an investment of 4.7 billion yuan, the facility is located in the Guangdong-Hong Kong-Macao Greater Bay Area, a vital strategic region for Chinas further growth.
The uptake of smart factories brings both challenges and opportunities for metalworking fluid suppliers, said Barrasa. For example, as more Chinese manufacturers turn to expensive computer numerical control machining tools, they will demand higher-performance synthetic fluids that can protect their investments.
Consulting company IHS Markit predicts that synthetic base oils will experience high growth in developing countries, including China and South America, in the near term, above the global average growth rate of about 3 percent per year by volume. Esters are the most popular synthetic base stocks for metalworking fluids, according to IHS.
For additive suppliers, Barrasa added, the challenges will be to help reduce the environmental impact of finished products as China adopts stricter environmental protection laws. Surfactants with great bio-degradability and more eco-friendly extreme pressure additives will be used in formulas, he said.
Speaking at the ICIS World Base Oils & Lubricants Conference in London in February, Klines Jarquin also pointed to a trend toward more environmentally friendly metal removal fluids, in particular.
Barrasa dismissed the idea that the metalworking fluid sector will be hurt by Chinas slowing economy, which dragged the countrys year-on-year gross domestic product growth rate down to 6.6 percent in 2018, a record low for the past 28 years. Instead, he said the current economic downturn is the price China must pay to transform itself from a giant, traditional manufacturer to a leader in the time of Industry 4.0.
The Chinese governments measures, including cutting industrial capacity, particularly in the coal and steel sectors, restructuring some state-owned enterprises and enforcing stricter environmental regulations, paved the way toward Industry 4.0, he said. The transformation brings opportunities for overall industrial lubricants.
One example could be Chinas push for the adoption of alternative-energy vehicles. In July, the country will replace its existing China V emissions standard, an equivalent to Euro 5, with the China VI standard, which imposes stricter limits for heavy-duty diesel vehicles. Other vehicles will have to comply with the new standard in 2020. This may result in an uptick in production of newer vehicles that meet the latest emissions standards, boosting demand for fluids used to manufacture them.
China continues to encourage adoption of new-energy vehicles and cargo ships. According to a policy issued by the ministry of finance in August, consumers and companies buying low- or zero-emissions transportation equipment are exempt from vehicle and vessel tax.
Automakers responded quickly. General Motors, for example, plans to accelerate its launch of new electric car models in China and invest in connected cars, according to GM China president Matt Tsien, who spoke at a press meeting in Shanghai in February.
However, Castrols Barrasa said providing high-quality metalworking fluid alone is far from enough to support manufacturers new strategies, especially for clients that run automatic facilities. Data is key in these facilities, he explained. The revolution in sensors, digital connectivity and analytics allows us to create new services such as predictive analytics and real-time condition monitoring systems to manage the fluids.
Albert Ma, regional industry director of metalworking at Quaker Chemical, agreed, adding that metalworking fluid monitoring systems are vital to smart factories. The system allows clients to manage fluid performance in an efficient way through real-time monitoring, he said.
Cost-driven Solutions For now, though, manufacturers are feeling the chill of the economic downturn as Chinese consumers are holding back. In 2018, they bought 28.1 million cars, down 2.8 percent from 2017, although sales of alternative-energy cars soared 61.7 percent year-on-year to 1.25 million, according to the China Association of Automobile Manufacturers. Smartphones also face dire sales, down 10.5 percent from 2017 to 398 million in 2018, according to consulting firm IDC.
Fords China joint venture in Chongqing, Changan Ford, was reported to have cut more than 2,000 jobs in February. In November, major smartphone maker Foxconn announced a plan to slash 340,000 jobs, mostly in mainland China.
Such reality puts pressure on metalworking fluid suppliers to help clients reduce costs, said Ma. Supplying cost-effective solutions to help clients achieve the best total cost of ownership is one of the major opportunities for metalworking fluid suppliers in China, he said.
But Ma does not see (near) dry machining or minimum quantity lubrication-new machining technologies that require little lubrication and that have raised much interest among manufacturers in the West-being adopted in China soon.
We have seen some adoption of the new technologies in some areas, but there will continue to be limitations in balancing the efficiency and cost of these solutions. Until those limitations are solved, we dont expect to see high adoption of these technologies in the market, he said.
Ma was echoed by Ding Jia, research & development director at Francool, a major local Chinese metalworking fluid supplier based in Shenzhen with clients across various industries, including some running connected facilities. He elaborated that the adoption of MQL and dry machining requires some changes in machinery to ensure safety.
For example, using little to no lubes could cause smoke, depending on the processed materials. Therefore, investment in safety measures must be made to [prevent] lung damage, Ding said.
He added that Chinese manufacturers are, in general, satisfied with the current water based solutions, the only problem of which could be waste water treatment. Thats why we offer treatment solutions with our metalworking fluids, Ding said.
Intense Competition As the worlds largest metalworking fluid market, China is home to fierce competition that continues to draw local and foreign players, such as Japans major metalworking fluid company Yushiro, which started operation of its new plant in Guangzhou this year.
Among the Chinese local players, Francool is a typical example. With a global team of technical consultants from countries including Germany, the United Kingdom and Japan, the company follows global metalworking fluid development closely to stay competitive.
We are aware of new materials and technology trends, which helps us predict the demand from our clients. It is highly helpful for us to develop new products, Francools Ding said.
He gave smartphones as an example, as raw materials change often. This is an important market for China, which makes about 70 percent of the worlds electronic components, according to Castrol.
Different materials were used in the past decade, including metal, glass, porcelain and plastics. Each requires different machining methods and fluids. By predicting which material the clients might use, we will have the fluids ready when needed. The same goes with the auto industry, Ding explained.
As a company purchasing base oils and additives abroad, Francool is facing cost pressure amid the China-United States trade war, Ding acknowledged. The tariff hurts, but we managed our cost control by adjusting formulations. The company might consider buying domestically refined base oils if Chinese refiners could guarantee quality consistency from different batches, he noted. China imposed 25 percent tariffs on base oils and additives from the U.S. in August 2018.
Ding added that the company will continue to invest in R&D to stay competitive, especially against global players. The current competition scenario in Chinas metalworking fluid sector is still very much a price war among products with low to average quality. We dont want to be any part of it because we compete on quality and services, he said.
Multinationals are prepared for the growing competition.
We have seen fast expansion from Chinese local metalworking fluid suppliers in recent years, said Castrols Barrasa. But, he said, Castrols advantages are intact despite increasingly intense competition, especially for Chinese clients that are looking to expand overseas. Castrols ability to deliver solutions globally ensures our clients that they can rely on the consistency of our products and services, he said.
Quaker sees the competition in a different way. Metalworking fluid is a highly fragmented sector for a variety of industries, including aerospace and home appliances. Therefore, suppliers vary widely in terms of prices, products and services, Ma said. Quaker, he added, differentiates itself by working alongside its clients. The approach allows us to provide customized solutions in a timely manner, he said.