China’s push to improve efficiency as part of its efforts to clean up air and reduce greenhouse gas emissions is set to drive upgrades in both the automotive and manufacturing industries. According to Kline’s study, Opportunities in Lubricants: China Market Analysis, this will provide opportunities for leading lubricant marketers to introduce advanced formulations that the new technology requires.
While China’s attention is currently focused on stopping the novel coronavirus (COVID-19) pandemic and minimizing its impact on its economy, curbing emissions has also been a high priority. Emissions of some of the most harmful particulates have fallen dramatically in recent years. But limits are still well above World Health Organization (WHO) standards and government action is ongoing, driving for cleaner energy, cleaner cars, and cleaner manufacturing processes.
In the automotive sector, emissions limits and fuel economy requirements are driving new vehicle sales. However, despite bold government new energy vehicle sales targets, 2019 sales of electric vehicles grew only 3% as subsidies ran out. And while the virus is temporarily slowing all vehicle sales, it is highly likely that China will rebound to keep its number one position in global car sales in 2020.
This means the upgrade of the country’s vehicle fleet, still with a high proportion of internal combustion engines, will have a sequential quality upgrade for engine lubricants. Currently, the passenger car and commercial vehicle markets are largely API SL or lower and API CH-4 or lower, respectively.
“Here we can expect to see growth in higher quality API SM/SN and CJ-4/CK-4 service categories. This quality upgrade will favor multinational and major local suppliers, while smaller local producers could be squeezed out. And while these more efficient vehicles with longer drain intervals might not increase volumes, suppliers may see improved sales of premium products,” U.S.-based consulting and research firm Kline said in a statement.
“We are seeing a similar picture in the manufacturing sector,” says David Tsui, Kline project manager. “Here, the Chinese government drive for growth, modernization and efficiency means new machinery is being introduced, which again might spell a decline in lubricant volumes but an increase in demand for premium products, which again is good news for both local and international oil majors.”
China energy demand accounts for more than 20% of the global total, and it is forecast to grow at 1% per year to 2040. The focus of government action here is again to cut pollution and greenhouse gases. This is driving the need to expand the use of clean energy to burn less coal, which currently provides 60% of the country’s energy. The knock-on effect of this action will be to increase the use of energy generated by natural gas, wind, and other renewables.
“What we can expect here,” Tsui suggests, “is a growth in turbine and compressor oils, which will be increasingly synthetic. This will again be good news for local majors and multinationals with strong OEM partnerships and can supply technologically advanced products, though perhaps local minors will struggle to compete.”