Lubes demand reached a healthy 7.5 million tons in China last year, driven largely by a rapidly expanding car parc and a modest uptick in industrial output and construction, according to data from Great Wall lubricants. Though personal reports at the recent ICIS conference suggest that the industrial lubricants sector will be under more pressure in 2014 as the economy cools in that region.
Will the role of foreign businesses in China change? By law, foreign automakers are required to set up a joint venture with a local partner, with a limit of 50% of the total shares in the company. However, at an industrial conference late last year, an official from the Ministry of Commerce asserted that limitations on foreign ownership in the auto industry were likely to be relaxed in the near future.
CAAM, the nation’s main auto industry representative body, claimed the new measures would lead to the Chinese brands being “killed in the cradle”, as domestic manufacturers would be outperformed by the global giants, leading to a loss of access to valuable technology and revenue.
Although vehicle sales grew to a healthy 22 million units in 2013, foreign automakers outperformed most of their domestic counterparts, who lost market share over the course of the year. This, combined with weaker exports due to sluggish demand from developing economies, could be dangerous for domestic brands. This is to be contrasted with the recent success of the Indian automotive industry, where reduced domestic demand and weaker currency has resulted in a 29% uplift in exports and increased success of local brands like Tata (which also own the successful Jaguar and LandRover brands).
Collaboration and consolidation are key here - and not just in the auto industry. Dongfeng, which fared relatively well in 2013, has upped its stake in French automaker Peugeot, another potentially transformational alliance; Geely has purchased failing Swedish carmakers Volvo and Saab (but is set to consolidate its own brand range) and Wanxiang has just won its bid for Fisker.
In the lubricants industry, even the national oil companies are working together. Sinopec and CNOOC have signed a strategic partnership agreement to develop cleaner fuels. Great Wall has also been strengthening ties with both domestic and foreign OEMs, setting up a number of R&D centres and applying for close to 75 patents.
That being said, lubes producers undertaking R&D development projects with domestic automakers would have to be very selective in the manufacturers they choose to work with. From a classification perspective, many smaller producers will also have to work hard to ensure their products meet foreign standards. Certainly, collaborative development with lubes producers will help.
Whether or not the Sino-overseas rules are relaxed, Chinese automakers will be forced to innovate and adapt rapidly, or be pushed out of the market. The appalling air quality, which can be monitored at any time, will lead to increasing pressure from the general population to clean up emissions from all sources including vehicles.
We can expect a much more rapid convergence of specifications to European levels; local lubricants producers will have to keep raising their product performance and, of course, Group I base oil producers will be under even more commercial pressure. As reported at the recent ICIS Conference in London, Chinese lubricants demand will continue to grow with an emphasis on the top end products and brand-building along with it.
It is also important to anticipate continued growth in the use of the internet and even more application of web marketing to save costs and improve customer support performance. To this end, OATS' new systems support both Chinese language and OEMS listings.
To find out more, or to comment on items in this Bulletin, simply contact Diana Shen.
Sebastian Crawshaw
Chairman, OATS