Although there was an increase in sales volume, and profit margins remained the same, net profits fell due to increasing marketing costs, the Changshu, Jiangsu province-based company said in its annual report. The company did not disclose sales volumes.

Set up in June 2014, Jiangsu Huifeng Lubricant produces vacuum oil and vacuum grease products, steam turbine oil, hydraulic oil, metal processing oil and other industrial lubricants.

The company said its share of the lubricant market is small and has a high dependency on vacuum pump oils, making it difficult to compete with the bigger players. To remain competitive, we will develop new products and strengthen our marketing strategy and channels, the company said. Vacuum pump oil makes up about 80 percent of the companys operating revenue.

The governments increasingly stringent environmental policies forced many of the companys industrial clients to terminate production, which reduced demand for its products, the company explained, noting that it expects that trend to continue in 2018.

In January, China introduced the Environmental Protection Tax Law for air, water and noise pollution. Industrial analysts expect a mid-size company to pay about 60,000 to 120,000 in air pollution taxes and 80,000 to 150,000 in water pollution taxes, the company said in its report. This will also increase the cost of production for lubricant companies.

PetroChinas lube arm, Kunlun Lubricants, reported a 219 percent spike in net profit last year. Its operating revenue shot up 20 percent, to around 10 billion.

According to the companys website, its market share of motor vehicle oil, industrial oil, and marine oil increased 2 percent year over year, and sales of grease increased 22 percent. PetroChina is the public subsidiary of the state-owned China National Petroleum Corp., or CNPC.

To expand sales, the company added 504 service stations to its network last year for a total of 21,399 stations in China, and integrated information technology to combine its marketing of refined products, fuel cards, non-oil business products, lubricants and gas. Kunlun high-speed rail gear oil replaced Japanese products, filling a gap in the domestic market while our zero inventory management model, which removes inventory that is more than one-year old, and other cost-reduction measures helped reduce total costs by 380 million, the company said in a statement.