Chinese lubes majors feel the pinch

Sinopec and CNPC are under increasing pressure from foreign and domestic oil producers

According to a recent report from Qianzhan Research, China’s large state-owned lubes producers are seeing more competition in the high and mid-low end lubes space from foreign and domestic rivals, respectively.

China Lubricating Oil Industry Report (2014-2018) outlines the marketing challenges faced by Great Wall Lubes (Sinopec) and Kunlun Lubricants (CNPC) over the next four years. In 2013 over 11.38m tons of lubricants were sold; CNPC lubes enjoyed a 26% market share, while Sinopec covered 21%.

The lubricants industry will no doubt continue to grow rapidly over the next four years, but Qianzhan suggest the majors might not benefit as much as competitors. Foreign brands like Shell, ExxonMobil, Castrol, Total and Fuchs enjoy a number of competitive advantages over their Chinese rivals, especially in the high-end lubes segment, where they hold a 60% market share.

Access to more developed technology and equipment increases the overseas stronghold in the segment. Consumers also believe these products to be trustworthy and genuine. Although CNPC and Sinopec are both making significant strides in technology, it will take some time before they can overtake established foreign brands.

Domestically, the nation's lubes giants are seeing greater competition from regional rivals, such as Qingdao’s Copton, Nanjing’s Lopal and Xian’s Jarn. While less competitive in the high-end markets, regional producers are carving out a niche in the mid-to-low-end segment, where easy access to lubes technology has lowered barriers to entry.

Although regional producers will find it extremely difficult to match their national rivals in scale and capacity, they are often more responsive and able to change marketing and distribution strategies to fit market needs.

CNPC and Sinopec still dwarf regional producers and have significant financial clout, meaning they could accelerate R&D projects to catch up with foreign rivals. However, as China’s pushes through increasingly reformist market policies, state-owned monopolies will be less easy to hold on to.