As OATS celebrates it 30th Year of operation, we face a very different lubricants market from the days of our foundation in 1984. In fact, a great deal has happened globally in the past 30 years to change the industry landscape, much of it driven by China’s dramatic economic growth.
Yet today, the nation's oil majors and their lubricants operations are under pressure from all sides. In the mid-to-low end segment, regional oil cos are ramping up marketing and distribution efforts, while technically advanced foreign rivals dominate the high-end segment.
According to a recent report from Qianzhan Research, Great Wall Lubricants (Sinopec) and Kunlun Lubricants (CNPC which enjoyed a 21% and 26% market share of the 11.38m tons of lubricants sold last year, may see their positions eroded.
Foreign lubes producers like Castrol, ExxonMobil, Fuchs, Shell and Total made up fully 60% of high-end lubricants sales last year, mainly because Chinese consumers looking for high quality lubricants placed more trust in foreign brands than domestic ones. However, there is clear evidence that domestic producers are winning the battle to bring their products up to the highest international standards.
Meanwhile, low barriers to entry, less regulation, tight distribution management and responsive marketing strategies all worked in smaller domestic companies’ favour, especially for regionally recognised players such as Qingdao’s Copton, Nanjing’s Lopal and Xian’s Jarn lubricants brands.
Nonetheless, a recent online report from Sinolub, an online lubes retailer, showed China’s e-commerce lubes buyers still favoured inexpensive domestic brands over pricier foreign ones. Indeed, Great Wall’s SJ 10W-40 Jiebao Wang 1L motorcycle lube enjoyed the top spot as most popular individual product by sales. Consumers did say, however, price was not necessarily the deciding factor and would be happy to buy expensive oil if it suited their vehicle’s needs.
What’s more, China’s majors are undergoing a series of rigorous reforms aimed at streamlining operations and increasing competitiveness. The firms will shed underperforming assets and will also invite more investment and expertise from abroad. For example, CNPC has announced the sale of two major pipelines; Sinopec has proposed a sale of 30% of its marketing operations; and CNOOC has set up a special committee to create efficiency in the nation’s energy sector. Streamlining at the nation’s largest SOEs should allow companies to focus their efforts on their core competencies.
In essence, we are seeing a period of convergence between Chinese lubes producers and their international counterparts - a message that OATS' Diana Shen will be delivering in more detail at the 8th ICIS Asian Base Oils & Lubricants Conference in Singapore (24th - 26th June 2014). If you are unable to attend, Diana's presentation will be available on the OATS website to coincide with our next China Bulletin at the end of June.
In the meantime, to find out how OATS can help grow your lubricants business over the next 30 years or, as always, to comment on any of the items in this month's Bulletin, simply contact Diana Shen.
Sebastian Crawshaw
Chairman, OATS