Welcome to 2015! As another year dawns, an early report from China’s Ministry of Commerce showed that China's trade growth in 2014 was 3.5%, which would mean missing the GDP target of 7.5% by some margin. If this is the case, China will have experienced its slowest growth for 24 years. Yet despite this apparent setback, automotive and oil companies remain bullish.
French major, Total SA, believes lubricants sales in the region will double over the next ten years, having previously grown between 10-15% since 2009. The company is betting on high-end and specialized lubes sales for growth and has now begun construction on the Asia Pacific region’s first dedicated grease unit. The Tianjin Grease Emerging Resource Project (TIGER) will have a 5000mt capacity for grease products and may be completed as early as Q4 2015.
Interestingly, Shell has announced plans to divest its 75% stake in lubes producer Tongyi, although this was part of a larger plan to increase cash flow and liquidate assets.
China's own producers are also optimistic. Sinopec believes that total lubricants consumption should hit 7.6m tons in 2014, although did warn that growth could remain negative or flat next year.
Meanwhile in the auto sector GM is hoping to best its German rival VW with an aggressive plan to invest more than $14bn into its Chinese operations before 2018. The carmaker will up capacity to five million units a year and introduce 60 new models to the market, including nine SUVs.
According to the China Association of Automobile Manufacturers the country produced 21m automobiles in the first 11 months of 2014 and looked set to produce 23m by the end of the year. The nation also passed the 300m drivers mark last year.
Despite all this investment and predicted growth, the two industries face significant challenges in 2015. Although GM’s sales increased 10% year-on-year in the first 11 months of 2014, growth actually slowed 1.4% from last year. Fellow car giant Toyota also missed its sales goal of 1.1m vehicles in 2014.
Automotive production responded to slower GDP growth by increasing just 0.1% in the same period. Sales growth, however, shrunk by 1.3% from 7.4% in 2013 to 6.1% in 2014. This has led to bloated inventories at auto dealers, which increased by 351,400 vehicles in the first 11 months, with stockpiles booming by more than 10% in November alone.
With so many automakers fighting for shrinking growth, corners may be cut, especially with lubricants products, which could eventually lead to component damage and reduced vehicle safety. This is precisely the focus of this month’s White Paper, kindly supplied exclusively to OATS by Thatcham Research’s Andrew Hooker.
China's government last revised GDP forecasts from 8% to 7.5% in 2012. They will now reduce it further to 7% for 2015. Although a slowdown is both necessary and expected, it seems to be having a visible effect on auto sales, which will in turn affect lubes producers, both international and domestic.
Key to staying ahead in this market will be timely information on the nation’s growing fleet, and OATS continues to invest in such data. Not least is the development of our EarlFUSiON platform and the new products and services which will be based upon it. To find out more, or comment on anything you have read in this Bulletin, simply contact Diana Shen. As always, we look forward to hearing from you.
Sebastian Crawshaw
Chairman