The beginning of 2015 has been a tough one for China’s carmakers. Inventories are piling up, production is slowing and even the most popular Western brands like VW & GM are being forced to cut car prices by as much as $9,000 a piece just to shift units. However, it is unlikely that this current dip will cause lubes producers significant long term concern.
Currently the US and Chinese lubricants markets are about the same size. Extrapolating the trends from data presented by Fuchs Petrolub's Dr Lutz Lindermann, it is clear that the Middle Kingdom is still well on its way to consuming almost twice as much lubricants as the US in the not too distant future. But, the question remains: when?
At present North American consumers purchase 19kg of lubricants products per capita, compared to 9kg in Europe (as reported by both Fuchs and Europalub) and just 5.6kg in China.
As environmental issues and consumers pressure demand for more advanced-performance base oils and additives, the US per capita consumption should shrink towards European levels.
Despite the short term slowdown, the China Association of Automobile Manufacturers still predicts car sales will grow by 8% this year, meaning plenty of room for expansion in the lubes sector.
With continued economic development, China should progress towards the European levels of per capita consumption. There are clearly structural differences in public transport and other social arrangements, but the trend is clear; China will go from consuming 6m to between 8-9m tonnes pa, while the US will fall from 6m to 4m. By 2025 or sooner, the Chinese market will be close to double the US. No wonder companies are still seeking ways to expand there.
Whether the full beneficiaries will be the local Chinese manufacturers is another interesting question. As reported in OEM/Lube News, recent research in Russia highlights the enduring popularity of Western lubricants brands. This is similar to the strength of the foreign car marques in China. In the lubricants industry we perceive consumers will be more risk averse than in the youth-driven online world.
A separate report, from Markets and Markets, estimates that base oil demand in Asia Pacific will increase by a CAGR of 3.5% over the next five years, with China driving demand and accounting for 56% of the total. Although base oil demand is lower than lubes demand, better technology and improving production techniques amongst China’s leading oilcos will help increase efficiency.
Driving new efficiencies will be a critical focus for Wang Yilin and Wang Yupu, the two new heads of CNPC and Sinopec, respectively. Change at the top and radical new policy documents from the NDRC, China’s top economic body, will see reforms in the nation’s oil and gas sector aimed at opening up more investment to private companies, relaxing government control of crude imports and making major corporate and personnel changes in state-owned enterprises.
With a greater mandate for reform and a rapidly growing lubricants sector, China’s lubricants producers will need to build a strong brand image to stand a chance of capturing China’s premium lubricants segment. Companies looking to combine lubes consumption with China’s booming e-commerce sector should look at Lopal's success - a local producer whose clever promotion gave it “product of the week” ranking on Tmall, China’s largest B2C online platform.
As always, OATS is at the forefront of analyzing trends and challenges facing China’s lubricants market, both online and offline. Our EarlFUSiON platform and expansion in data coverage brings new opportunities for lubricants marketers.
To find out more, or to comment on anything you have read in this month's OATS China Bulletin, simply contact Diana Shen. We look forward to hearing from you.
Sebastian Crawshaw
Chairman