Five years ago markets were jittery that a slowdown in GDP to below 10% would lead to massive inflation, and that a marginal slip in China’s PMI heralded a stark contraction for the nation’s economy. This month, Chinese investors will be more concerned about the $4 trillion in value that has evaporated from the stock markets over the last month.
The crash will hurt retail investors, who collectively make up over 85% of China’s market participants, and may discourage them from purchasing new vehicles. The China Association of Automobile Manufacturers has already slashed its growth forecast for the nation’s passenger car market from 7% to just 3%.
While Beijing alone will likely exceed 6m cars by the end of next year, the amount of electric vehicles and hybrids on the road is less than many would have predicted (or liked). However, the government has continued pushing for the rapid adoption of National IV regulations, which have been fully rolled out this year, providing further incentive for purchasing 'clean' vehicles.
Talk of National V regulations coming into play continues to put pressure on carmakers and lubes producers alike and is causing the premium lubricants segment to hot up. China already accounts for the majority of Group II base oil growth in the region, according to ExxonMobil, who have recently added more than 400,000 tons a year to its Group II capacity through its Singapore refinery.
China’s national oilcos have curbed their international deal-making over the past year or so, but the nation’s lubricants producers remain increasingly international in their ambitions. Kunlun, a subsidiary of CNPC, has recently made it onto GE’s approved suppliers list for turbine oils, while the lesser-known Yihon Lubricants has received the benchmark DENISON approval for its hydraulic fluid from Parker Hannifin.
While China and the Asia Pacific lubes market is set to maintain its growth, 6-7% looks very different from the 10% growth the region has enjoyed previously. An increasingly regulated and slowing car market is now set to cause fierce competition between international and domestic lubes producers.
Local producers will do well to to cater for cost-conscious consumers and still fall within government regulations. However, international firms remain likely to dominate the high-end lubricants market.
With 48% of China’s population now connected by mobile, and the majority of those by smartphone, lubes marketers able to connect with consumers with accurate, timely recommendations will also garner a big advantage.
Staying ahead of these changes will require access to vital, localised data. OATS is working hard to continue to bring up-to-date, informed and relevant information to both OEMs and Lubes producers alike on this key growth market.
To find out more, or to comment on anything you have read in this month's OATS China Bulletin, simply contact Diana Shen. As always, we welcome your thoughts and look forward to hearing from you.
Sebastian Crawshaw
Chairman