The new calendar year, 2012, promises to be a defining one in a range of ways.
Nearly all the major countries, China, US , Germany, France, Russia have planned changes in governments or elections. This doesn't, of course, include unplanned changes such as those underway in some Arab nations and North Korea. By the end of the year the world could look quite different yet again.
However, lubricants demand responds to growth in economic GDP and industrial production. Here the picture shows continued divergence, with predictions of Asian growth, European decline and continued US recovery. The latest report from ExxonMobil offers a good basis on which to predict the energy economy's future, at least for the next thirty years or so.
Across Asia, growth rebounded strongly in 2010, to 9.1%. It is likely to have been 7.3% in 2011, is expected to be 6.5% in 2012 and 7.5% in 2013, with exports leading the deceleration. Depending on which economist you believe, China growth is forecast at anywhere between 7.9% and 8.4% - a definite slowing from 2011. A particularly compelling assessment - with an 8.1% forecast - comes from Standard Chartered's latest report on the global economy.
Whichever number you agree with, there are cracks starting to appear in China's economy. Europe and the Eurozone, China’s largest market is now forecast to be in recession with a GDP decrease of 1.5%. This has already affected many Chinese businesses manufacturing for the European market, as demonstrated by the Exporters PMI index falling to 45% in November. In Beijing, transactions have fallen 67% and new properties are being discounted by 50%, so property is also under pressure.
Mercifully the main Chinese PMI rose to 50.3% in December from the 48% recorded in November indicating that the main economy is still moving forward. It looks likely that there will be some additional fiscal stimulus applied to keep the Chinese internal market moving forward as the much referred to “re-balancing” towards internal consumers take place.
Car sales are usually a good indicator of actual confidence. In the first 11 months of 2011, China's auto sales rose just 2.56% year-on-year to 16.82 million units, while sales of domestic brands declined 2.34% to 5.52 million units, according to the China Association of Automobile Manufacturers (CAAM). The dramatic drop from the record sales levels of 2010 was largely caused by the ending of policy incentives for car purchases combined with the country's macro tightening measures,
Commentators recognise that the industry's old growth mode can no longer adapt to changes in the market environment. According to Cheng Zhao, director of the Anhui Economic and Information Technology Commission's industrial policy department, slow-growing domestic brands need to increase research input and accelerate industrial transformation by focusing on quality, technology and brands.
This is typical challenge of a economy where rising costs, like those currently being experienced in China, force producers to develop more advanced and sophisticated products. Eventually this will filter through to the lubricants markets as more advanced formulations with improved environmental performance are required by the OEMS. The fact that Beijing is now adopting National V emissions standards can only accelerate this process.
As environmental considerations continue to evolve, new electric car standards are being established. The Standardization Administration of China approved and issued four sections of the Electric Vehicle Charging Interface and Communication Protocol Standards at the end of 2011 and they will come into force as of March 1 this year. This is a further example of the speed with which standards are emerging and being applied. We can expect to see further developments along these lines for engine lubricants in the coming 12 months.
As always, OATS will continue to monitor the changes of what is now the world's largest automotive and lubricants market, alongside developments across the rest of the world. Meanwhile, if you have any feedback, ideas or possible content we would be delighted to receive it. Simply contact Diana Shen at dshen@oats.co.uk.
Best wishes for another interesting year.
Sebastian Crawshaw
Chairman