China’s lubricants market is on track for a downturn – and the slump is expected to last for the next decade.
“Finished lubricants demand is expected to decline from 6.9 million tonnes in 2021 to 6.6 million tonnes in 2026 and 6.1 million tonnes by 2031 at a negative CAGR of 1.3% over the 10 years,” says George Morvey, Industry Manager in our Energy sector. “By segment, the consumer and commercial automotive segments are anticipated to decline at CAGRs of 2.6% and 3.1%, respectively. Industrial will be flat, recording a CAGR of 0.4%.”
While volumetric declines like this in China are unprecedented, Morvey says, there are specific drivers and market trends/shifts/changes that can be traced back to these declines. Here, he details each of them:
“BEV penetration and shared mobility development will suppress volumetric demand, but conversely, we expect the market to continue moving away from heavy visgrade PCMO such as 10Ws and 15Ws to 5Ws and 0Ws,” says Morvey, who notes that China is the largest market in Asia-Pacific, accounting for 40% of regional lubricants demand and 17% of global demand. The deviation from heavy visgrade PCMO means more synthetics; more current API service category penetration at the expense of obsolete product; and opportunities in franchised workshops, quick lubes, and independent workshops.
“This segment is taking the biggest volumetric hit,” reports Morvey, who adds that leading factors for the decline include the outlook for new vehicle sales, vehicle utilization, and adoption of longer oil drain intervals (ODI).
According to our research, leading Chinese HD vehicle OEMs such as FAW, Foton, and Shaanxi Auto are building vehicles that can reliably operate on longer ODIs upwards of 60,000 km to 100,000 km. Lubricants suppliers are supporting this by formulating product, along with sales/marketing support to communicate the benefits to vehicle owners/operators.
In the off-highway agriculture segment, the government has targeted and is subsidizing the purchase of large-sized tractors to gain efficiencies and reduce emissions. The National IV emissions standard (off-highway sector) will take effect in 2022 and impact product formulations, visgrade demand, and other quality-related factors, collectively reducing volumetric lube demand but creating new opportunities for lubricants suppliers.
“Industry 4.0, or smart manufacturing, has been a hot topic across manufacturing industries in China,” says Morvey. In May 2015, the State Council launched “Made in China 2025,” which is considered China’s version of Industry 4.0. It is the first 10-year strategy plan issued by the Chinese government for manufacturing development, targeting high-value industrial sectors for global dominance that include robotics, green energy and green vehicles, information technology, aerospace equipment, railway equipment, and power equipment.
Smart manufacturing, involving IT and IoT technologies, utilizes equipment that is connected and automated, integrating enterprise system connectivity and big data capabilities to enable real-time condition monitoring, predictive maintenance, and optimized operation. While such a trend has negatively impacted industrial lubricant consumption volume, Morvey says, it also brings potential for quality synthetic lubricant products as well as value-added service.
For more information on the subject, check out our Global Lubricants: Market Analysis and Assessment. In continuous publication since 2003, the report provides a comprehensive, in-depth analysis of automotive and industrial finished lubricant products, end-use industries, trade classes, major suppliers, and market trends in leading markets and regions. In addition to China, Global Lubricants covers Australia, Bangladesh, India, Indonesia, Thailand, New Zealand, and Pakistan in the Asia-Pacific region; it also spotlights North and South America, Europe, and Africa-Middle East. Regional editions are currently being published.
In October, Kline will present Opportunities in Lubricants: ASEAN Market Analysis. A comprehensive analysis of the finished lubricants market of this region in the post COVID-19 world, the report provides an in-depth analysis of all key market segments in nine countries with a special focus on how key market trends, opportunities, and challenges have changed after the outbreak of the pandemic.