The London ICIS Base Oils Conference in February provided some excellent insights into the changes taking place in the lubricants industry around the world.
With flat European demand, the significance of China and Asian growth is even more important. China’s GDP is expected to grow at 7-8% and, juxtaposed with Lubrizol’s forecast for Asian vehicle production to grow from 4m in 2001 to 41m by 2018, Kline's forecast of a 5.9% CAGR (compound annual growth rate) for the lubricants market seems over-modest.
Fuchs' Apu Gosalia provided the Conference with updated statistics showing that while China is very close to the US as the world’s largest lubricants market, the trends are startling different. The US consumes 20kg/capita per annum, compared with Europe’s 10kg/c/pa, whereas China’s is a fraction of that.
There is no real reason why the US should be so high - it appears to be an historic anomaly or aberration. With the improvement in fuel economy and more cars from Europe, this US trend must fall in the coming years towards European levels which, in turn, should also fall further.
On the other hand, the Chinese consumption numbers are set to rise. As the effects of greater Chinese population kick-in, the Chinese will easily surpass the US. Not surprisingly nearly all oil companies have a presence in the country and the competition is intense.
With this market evolution we can expect to see several new trends:
- The shift of wealth from the Coastal regions inland, with major factories relocating to lower cost locations, spreading the wealth and lifting more people out of poverty
- The Chinese Majors, Sinopec and Petrochina, developing their resources to be able to compete with the historical lubricants market leaders, Shell and ExxonMobil
- The environmental pressures referred to in the latest 5 Year Plan bringing further tightening of emission controls. With enhanced manufacturing performance, the more European approach to lubricants consumption will bring about a more rapid adoption of higher grade lubricants.
- The recent announcement of four major coastal refinery/chemical complexes by the Government potentially signals a completely new direction to remove reliance on imported refined products and upgrade the quality of refined products - e.g. base oils. This has major implications for the new Korean Hyundai/Shell project and the expansions of the other Korean refiners. In turn this, plus GTL, could lead to a long market in top tier base oils with the subsequent effect on Group 1
For lubes producers, the adoption of advanced specifications also means greater demand for high-quality base oils. SK presented several charts at the Conference showing a switch over eight years from Group I to Group II oils: in the PCMO sector, the former will fall from 60% to 20% of the market between 2010 to 2020, whereas the latter will double from 40% to 80%. HDEO should experience a similar, albeit less dramatic, trend, with Group I falling from 86% to 53% of the market and Group II rising from its current 14% to 47% during the same period.
The challenges for the lubricants marketer in China is to find the right distribution, evolve the product ranges early and build brand. We expect to see a continued acceleration of marketing initiatives to bring this message to the general public with more use of web solutions and recommendation sites.
That is why we, at OATS, like so many other businesses, have been investing in China; gathering the local equipment data and building relationships with OEMS to serve our clients better. It is also the reason why we have now launched our Mandarin language OATS website.
If you would like to discuss how OATS' data expertise can help your business, or have any feedback, ideas or possible content for the OATS China Bulletin or website, we would be delighted to hear from you. Simply contact Diana Shen at DShen@oats.co.uk.
Sebastian Crawshaw
Chairman, OATS