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August 30, 2019

Volume 7 Issue 4

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Chinese Lube Brands Grow in Number

XI’AN, China – China is likely to churn out more lubricant brands before potential consolidation of the industry, even amid a lack of growth, said experts at an event held here earlier this month.

“It’s easy to make money out of lubes in China. You don’t see it in developed countries,” said Zhang Chenhui, an independent consultant, at the 2019 Muchengyou Lubricant Marketing Forum held on Aug. 18 in Xi’an, Shaanxi province. He estimated oil sales account for about 30 percent of car repair shops’ revenues in the country.

This is in spite of the fact Chinese demand for both motor oils and industrial lubes is weakening. The passenger vehicle market saw sales volume drop just over 9 percent in the first half of 2019 compared to the same period last year, according to Shanghai-based China Passenger Car Association. Even electric vehicles, for which China is the number one market globally, saw signs of ebbing sales: The country’s major EV maker BYD announced sales volume in July dropped just under 12 percent year on year.

Across industries, Chinese state statistics showed the Purchasing Managers' Index, which indicates a nation’s confidence in manufacturing and service sectors, averaged 49.7 percent in the first half of 2019, down 1.6 percent from last year, suggesting a slight majority of supply chain managers in China see the market trending downward.

But despite the lack of volume demand growth, China is still home to thousands of small brands, and that number will continue to grow.

Even companies in other industries are making lubes. For example, Chinese major e-commerce company JD launched a private label, Jauto, for its aftermarket online store in May. Jauto covers various car-related products, including engine oils, which are supplied by Fuchs Petrolub, targeting middle-class car owners.

One major reason for the rampant growth of new brands is the huge profits made by bigger companies operating in the country, Zhang explained. Multinationals including Shell, Castrol and ExxonMobil bring in more profits on oils than they do in the West, as do Chinese state-owned companies Sinopec and China National Petroleum Corp.

Car maintenance cost is one example. In the United States, according to the Lubes’n’Greases Factbook, the average cost of a conventional engine oil change is U.S. $37.32 (CNY266). For a one-time service, including an oil change, on a family car in China, the cost is about CNY400.

“As long as they keep the gap in profit this big, the Chinese lube market will likely see more brands and new participants,” Zhang said. If profits for big brands lowered to levels in the West, “probably 80 percent of Chinese brands would disappear,” he added.

Another reason is China’s massive and highly fragmented aftermarket due to the similarly fragmented auto market, said Chen Jun, founder of Yin Neng Technology, a major oil distributor for Bosch, Lukoil and Eneos in Sichuan province.

In the U.S., he gave as an example, most cars are American and Japanese brands, while German cars and Japanese cars are widely seen in Europe. But in China, “American cars, German cars, Japanese cars and Chinese cars all get their own fair share, which raises a fragmented aftermarket that gives opportunities to grow numerous lube brands,” he said.

Therefore, he predicted, China’s lube market will not go on a consolidation path like developed nations.

Zhang Yueyi, a lube industry veteran and retired senior engineer at China Air Force Institute of Oil Production, has a different opinion. He insisted China should eventually have only a few big brands through market elimination and mergers. However, he added there should be more lube product varieties.

“The brands will be reduced, but as the market matures there will be more customized products to cater to specific demand,” he said.