Three Predictions for China's Lubricant Market in 2012

It is time for the annual review again. After more than ten years of rapid growth, the lubricant industry showed a slowing trend in 2011: in the first ten months, lubricant output was 6.829 million tonnes, up 8.8 percent year on year, whereas for the whole of the previous year the figure was as high as 13 percent. What worries people in the industry is that although total growth has slowed, market competition has become even fiercer. Over the past year, many new foreign brands crowded into China, national brand giants grew steadily and firmly controlled around 60 percent of the market share, CNOOC is about to truly enter the fray, and small and medium-sized brands were not to be outdone. The previously scattered, small-scale and disorderly situation of the low-end market began to improve, with forces gathering to shake up the market structure. It can be foreseen that lubricant manufacturers will collectively undergo a baptism of slowing market growth and enter an era of even fiercer competition. All of this indicates that the lubricant industry is about to usher in an extraordinary 2012.

A three-way balance of power that implies a reshuffle
Since the 1980s, when foreign investors entered the Chinese market with factory-fill oils for imported vehicles, the lubricant market has gradually formed a three-way balance of power. Although this overall situation has always remained broadly stable, the forces of foreign brands, national brand giants and small and medium-sized brands have risen and fallen over the years, and today, with the industry's total growth slowing and the market becoming more competitive, this change in the balance of power will be even more dramatic.

Foreign brands are fierce. Industry insiders analyze that in the coming years the global lubricant market will show slow growth, but that the lubricant markets of the BRIC countries and South Korea will grow most strongly, with China being the growth engine of the lubricant industry. The ever-expanding space in the lubricant market has attracted many foreign enterprises to enter China in clusters. At the 12th China International Lubricants and Application Technology Exhibition, which concluded in November 2011, lubricant companies from Russia, Germany, South Korea and other countries appeared one after another. Our reporter found that these companies had all just entered the domestic market in 2011 and were working their way from south to north, striving to open up the high-end lubricant market. As a leading foreign brand, Shell continuously increased its investment in China in 2011; in addition to building and expanding lubricant capacity, its advanced lubricant technology service center in Zhuhai was also put into use not long ago. The year 2012 will be a year in which Shell flexes its muscles.

National brand giants give no ground in the fight for the market. The two major national brands remain consumers' first choice, with Kunlun Lubricant accounting for around 36 percent of the total market share, and the two major brands firmly controlling 60 percent of the market, which is enough to prove their deeply rooted influence in the market. In 2012, the two major national brands are consolidating their existing foundation and brand strength, keeping up with development trends, and contending with foreign brands in the high-end market. In addition, after two years of construction, CNOOC's 600,000-tonne lubricant project in Taizhou is about to truly join the fray in 2012, and will undoubtedly become a strong force among the national teams of the lubricant industry and in the reshuffling of the domestic market.

In addition, small and medium-sized domestic brands are not to be outdone either, constantly gathering strength in an effort to secure a place for themselves; the previously scattered, disorderly and small-scale situation of the low-end market has shown a marked change for the first time, and among these small and medium-sized brands a real leader capable of competing with foreign brands and national brand giants is about to emerge. Over the past few years, proprietary brands such as Dongfeng SG, Jiangsu Longpan and Laike have developed rapidly. It is reported that by 2012 Dongfeng SG's total capacity will reach one million tonnes, roughly equivalent to the total capacity of Unified Lubricant after its expansion in 2010; such large-scale capacity expansion fully demonstrates the ambition of small and medium-sized brands to open up the market. The concentration of all the above forces will deliver a powerful shock to China's three-way balance of power in the market.

Rational lubrication will become the general trend
As is well known, the lubricant industry is closely bound up with the development of the automotive industry. At the end of the year, after a period in which the golden September did not materialize and the silver October faded, China's auto market remained unpromising in November, with production and sales down 3.41 percent and 2.42 percent year on year, the lowest growth rate in more than a decade. The auto market quickly affected the lubricant industry. By October 2011, China's lubricant output was 6.829 million tonnes, up 8.8 percent year on year, slower than in the previous two years. Apart from the slowing growth of China's auto market, the implementation of the concept of replacing quantity with quality in the lubricant industry and the continuous lengthening of oil drain intervals were also among the main factors. The oil-use concept of rational lubrication will become the general trend and will be advocated and adopted by people.

Industry insiders analyze that, with the growth of total market volume slowing, improving the level of lubrication and achieving growth by replacing quantity with quality have become the best choice for lubricant manufacturers. The precondition for achieving such healthy growth is precisely the realization of rational lubrication across the whole industry. Rational lubrication has become the consensus of industry experts. Industry experts explain that, because China has only just formally entered the automobile society, many people do not pay enough attention to vehicle lubrication and maintenance, or attach great importance to it in concept but lack correct and rational lubrication knowledge and blindly choose lubricants, resulting in waste and vehicle damage. Statistics show that lubricating oil may account for less than one thousandth or one ten-thousandth of the cost of a car, but its impact on the vehicle's service life is far greater than 10 percent, and scientific and rational lubrication can reduce repair costs by 25 percent. Actively learning about lubrication and maintenance has become a necessary task for Chinese car owners.

At present, the waste and economic losses caused by blindly choosing oils and irrational lubrication are already alarming. Deeply moved by this, Liao Guoqin, General Manager of PetroChina Lubricant Company, who comes from a technical background, said: With around 6 percent of the world's GDP output, we consume more than 15 percent of the world's lubricants. This is by no means an honor for the lubricant industry, and the lubrication concepts and methods of the entire industry need to be adjusted. It can be foreseen that, with vigorous promotion by manufacturers and the continuous strengthening of consumer awareness, energy-saving and high-efficiency lubricant products will become the mainstream of the market in the future, and to that end the development of the high-end market will mature together with the concept of rational lubrication. Only then will the lubricant industry truly enter the era of green lubrication.

The lubrication guidelines for passenger vehicles are issued
The realization of rational lubrication, put plainly for ordinary consumers, means using the oil that matches the car you drive. Because China has only just formally entered the automobile society, many consumers are not even clear about selecting lubricants according to the two major factors of engine model and temperature, which urgently requires industry associations and lubricant manufacturers to educate consumers. In such circumstances, issuing scientific and rational technical standards for the selection of lubricating products becomes crucial.

As is well known, fuel standards are crucial to energy conservation, environmental protection and improving air quality in large cities, and next year China will implement the National V fuel emission standard. In the field of lubricants, the issue of formulating relevant standards has likewise become increasingly prominent. As the number of passenger vehicles in China keeps growing, establishing scientific and authoritative lubrication guidelines for passenger vehicles has become inevitable, and the market keeps calling for the release of relevant standards to guide the use of passenger vehicle lubricating products and end the situation in which passenger vehicle lubrication has no basis to follow. It is worth noting that in 2010 the Society of Automotive Engineers of China and PetroChina Lubricant Company jointly formulated and released the Commercial Vehicle Lubrication Guidelines, with good results. At the 2011 annual conference of the Society of Automotive Engineers of China, industry experts also expressed the hope that such guidelines would be issued next year, which would be of great significance for guiding the scientific selection of lubricants by passenger vehicle designers, maintenance personnel and users, and for raising the level of energy conservation and emission reduction of China's automotive products; under these circumstances, the release of lubrication guidelines for passenger vehicles is imminent in 2012.

Industry insiders analyze that, affected by the auto market, the entire automotive industry chain will enter a period of adjustment in the next one to two years. At the same time, competition in the lubricant market will become fiercer. In the coming 2012, the continuous popularization of the professional concept of rational lubrication and the release of scientific and rational lubrication standards will set the stage for the lubricant industry to adjust and achieve healthy and sustainable development. At this critical moment when opportunities and challenges coexist, whether the lubricant industry can adjust and transform its lubrication methods and concepts and take advantage of the industry adjustment to achieve overall upgrading will be the key factor determining whether the industry can continue to develop healthily and sustainably.