The OATS China team has been out and about in the past month, including attending the ICIS base oils conference in Seoul. Among the various presentations was an excellent offering by Toyota.
Some of the highlights included a focus on the lubricants quality in Asia, where Toyota reported that where Korea had nearly 80% of lubricants of SM quality, China still only has less than 10%. Indeed, in China over 70% of lubricants sold were API SG. Given the modernity of the car park, there is clearly a mismatch.
From the same period (2009 95% of lubes sold were 10W-30 viscosity or lower for Korea against 50% for China and only 20% at 5W-XX. Taking these two points together suggests that lower viscosity oils are being sold with poor quality standards. Again, a mismatch.
Elsewhere at the conference, it was clear that the volume of Group II and Group III base oil being imported into China is higher now than last year, which could be an indicator of an ongoing shift to higher quality?
At the same time we are hearing reports of the difficulties of supply of certain base oils – along with concerns about local quality. Base oil supply constraints may also be constraining the realignment of the Chinese lube market from lower quality to higher quality material.
Toyota also reminded us that the BRICS countries are in the early motorisation phase with car ownership at 200 vehicles per 1000 compared with 500-700 for the leading western markets. There is a long way to go in terms of automotive growth in these markets and is good news for the lubes industry, assuming there is the physical infrastructure for cars to drive on and a reasonable supply of fuel at an affordable price.
However, China's urbanisation does not necessarily mean its pursuance of a Western model. It is important for OEMs and the petrochemical industry to have a clear understanding of China's needs, without assuming they have an off-the-shelf, pre-tested solution. The very latest announcement that introduced manadatory CN4 gasoline emission standards across the whole of China from 1 July is a good example. While not a surprise to automakers, the speed of the final date being set is certainly different from the lengthier processes expected from Western regulators.
There is little substitute for having resources 'on the ground', working directly with Chinese manufacturers, suppliers and marketeers. It's the primary reason why OATS has developed a China team, providing us and our clients with critical local knowledge as this vital market develops.
This issue of affordable fuel is particularly topical, given the IEA decision to release part of the strategic fuel stockpile in the US, having first sought approval from China, India and Saudi Arabia. Despite criticisms in several leading editorials, this is excellent news for all of us. Recoveries in the Western world are stalling and high crude prices are a tax on all oil (and lubricants) consuming economies.
The sharp price fall, will help all the global economies and, in the long term, the fact that the IEA could do it again may constrain the speculators (and OPEC) who have driven up crude prices when the economy is quiet. We shall see…
In the meantime, if you would like to contact the OATS China team or have any feedback, ideas or possible content we would be delighted to hear from you. Just contact us at bulletin@oats.co.uk.
Sebastian Crawshaw, Chairman OATS