What Does China’s Emphasis on Sustainability Mean for the Lubricants Market?
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Originally Posted On: The Changes In China’s Lubricants Market (klinegroup.com)
China’s lubricants market is projected to increase at more than 1% CAGR until 2025, with gains caused by growth in premium lubricants as the country modernizes at a breakneck pace. The finished lubricants demand growth in the country has traditionally followed GDP growth. Thus, the current positive projections should drive a healthy rebound in China’s overall lubricants market. China’s GDP growth had slowed before the onset of COVID-19, although it was still a healthy +6.1% in 2019. Economic growth declined due to the pandemic, but the country’s economy was still the only major economy to achieve positive growth in 2020, increasing by 2.3%. Growth is estimated to be 8.4% in 2021 as the economy rebounds, and more normal rates should be achieved thereafter.
Because of trade wars between China and the United States, the Chinese government had shifted its economic growth plans away from an export-driven economy to one focused on domestic consumption and improving the value of its export market through modernization and consolidation in its industrial segment. Beginning this year and running until 2025, China will implement its 14th Five-Year Plan, which aims to increase domestic consumption, modernize the supply chain in major industries, improve innovation capabilities, and enhance sustainability and environmental protection while developing the economy.
To accomplish this, the Chinese government is heavily investing in modernizing its industrial segment and phasing out much of the outdated capacity across various industries.
Chemicals is the largest industrial lubricants segment in China, consuming nearly one-third of industrial lubricants. In 2020, over 65% of newly added chemical material capacity worldwide was in China. Although the consumption of chemicals is expected to keep growing slowly over the coming years, the sector is expected to witness industry upgrades along with the elimination of outdated capacity.
Traditional heavy-duty industries, such as primary metals, mining, machinery, and auto manufacturing, will incorporate smart manufacturing technology; sustainability will become an important requirement in industrial development.
The drive toward sustainability is most prevalent in industrial segments, where the government continues to set up smart mining or manufacturing facilities with modern, more efficient, and often connected equipment. This will drive the upgrade in industrial lubricants performance as well as value-added services, such as monitoring the data streaming from all connected equipment and providing both cost-efficient as well as environmentally friendly lubricants service plans to maintain this equipment.
Since smaller businesses often cannot afford to upgrade, nor do they have the scale to justify using the largest and most modern equipment, industry consolidation will be the next natural step, affecting how lubricants marketers reach their customers. Small businesses often prefer local distributors, while larger companies would rather buy directly from lubricants marketers. Greater volumes of direct sales will require lubricants marketers to shift toward a more hands-on approach to sales and support, while smaller distributors may need to transition toward logistics and warehousing.
In the automotive lubricants segment, China is driving rapid modernization of the vehicle parc as it implements its National VI emissions standards, based on Euro VI. China’s implementation of these new emissions standards phases out older, non-compliant vehicles which either need to be sold to regions outside of Tier 1 and Tier 2 cities or sold to neighboring countries, as China’s strict policies will not permit non-compliant vehicles to be registered.
COVID-19, however, has driven some growth in vehicle sales as the population seeks to avoid using mass transit in favor of safer ways of travel. While vehicle parc growth will be slow, as much of new vehicle sales are for replacing older vehicles, the lubricants upgrade in the automotive segment will continue at a rapid pace.
Commercial vehicles production, led by a surging demand for trucks, grew by 20% to reach 5.2 million units in 2020. The segment reached the record-high performance to exceed 5 million units in production and sales for the first time. It is mainly aided by growing fixed asset investment, the phaseout of National III vehicles, and policies to tackle overloading issues, which drives a substantial growth for trucks. This also means growth in EVs will continue at a faster pace in China, especially given that China is aiming to become the global EV leader.
Overall, the lubricants market in China is heading toward quality levels similar to those in Europe and North America while placing a greater emphasis on sustainability.
To learn more about the Chinese lubricants market, subscribe to Kline’s just-published study on oils in China.