Demand for heavy duty motor oil (HDMO) in trucks in China is estimated to increase at a compound annual growth rate (CAGR) of 0.6% through 2022 based on the most likely scenario of the recently published Heavy-Duty Motor Oil: China Channel Dynamics and Opportunities for Trucks, Buses, and Construction Vehicles report. In particular, the heavy trucks population, estimated to have 5% to 7% annual growth through 2022, will drive the demand.
Heavy trucks consume more HDMO than other trucks in one oil change, causing the average HDMO consumption per oil change to also increase. Meanwhile, the improving technology of truck engines to meet with the latest emission standard will prolong oil drain intervals (ODIs). The positive impact from future truck population growth on HDMO demand will be largely offset by gradually extending ODIs and a declining bus population. Bus population will decrease mainly due to competition from high-speed railways and underground railways.
While HDMO products are moving to high-end, API CI, CJ and above, and lower viscosity, 15W, 10W, and 5W, the synthetics penetration in the truck HDMO market is currently low. “Since truck drivers are quite knowledgeable and price sensitive, synthetic oil is still in the very early stage of market entry in China,” notes Steven Zhang, project manager at Kline. However, synthetic HDMO use in trucks will have fast growth with a penetration rate of approximately 10% in 2022.
The construction vehicles population will have annual growth of about 2% to 3% in the next five years, mainly driven by the growing demand in infrastructure constructions. Synthetics will continue to grow in construction vehicles; however, this will not significantly help prolong ODIs, as the penetration rate of synthetics in 2022 will be small. Fleets is the main sales channel, accounting for nearly two-thirds of the HDMO demand in construction vehicles service fill. With oil prices becoming much lower than in other channels, construction vehicle drivers have the incentive to shop online.
“There is a trend in recent years that owner-operators tend to get associated with small fleets to acquire construction projects,” notes Zhang. “Meanwhile, they can enjoy lower prices for lubricants due to larger purchasing volume in a fleet than they would have received as an individual owner-operator. If fleets can purchase from Tmall in addition to lubricant distributors, the trend of grouping of vehicles with small fleets by owner-operators will stabilize. This will lead to faster growth of HDMO demand in fleets rather than in owner-operators.”
The main channel for HDMO demand in trucks and bus segments, independent workshops (IWS), will be challenged, and the fast growth of online sales will aggravate this challenge. Since truck owners can buy HDMO at lower prices from the online channel, they will not buy it through IWS. Therefore, HDMO sales through IWS will be negatively impacted by the growth of the online channel.
The tightening the emission norms is expected to accelerate in China, having a positive impact on the performance evolution of lubricants. More stringent emission standards would help phase out old vehicle models that are mostly produced by domestic OEMs. Nationwide Euro 6 emission standard is expected to be enforced in 2020 for consumer vehicles (light vehicles) and commercial vehicles (light trucks). As for heavy trucks, the emission standard is still under discussion and is expected to be enacted by mid-2019.
These and more detailed findings on each of the channels and segment can be found in Kline’s Heavy-Duty Motor Oil: China Channel Dynamics and Opportunities for Trucks, Buses, and Construction Vehicles report. The upcoming new analysis of the current and future Chinese lubricants market will also look at consumer automotive lubricants, industrial oils, and fluids and will cover all major supplier profiles.