Chinese lubricant market downturn brings forward more discerning customers

Nie ShiChun, deputy general manager of Sinopec Lubricant (Singapore) Pte Ltd., who spoke at F+L Week 2016 on March 9, offered his personal view on the slowdown of the Chinese lubricant market. Chinese lubricant demand peaked in 2012, he said, the “golden years,” leading up to and following the 2008 Olympics which was held in Beijing. But in the first nine months of 2015, China consumed 5.328 million tonnes of lubricants, a 3.2% decline from the same period a year ago.

Nie used the acronym STAR (Slowing down, Transitioning, Advanced formula, Rebalancing) to describe the phenomenon. “Slowdown” refers to the 2012 peak and onwards, including the fact that industrial enterprises’ total profits declined for the first time in years from 2014 to 2015, with a total decline of 2.3%. The construction engineering industry’s profit fell a huge 34.9%, he said.

“Transitioning” is about the more brand-conscious Chinese customers. Along with the “advanced formula” that the industry will adopt, end users themselves will develop more discerning tastes for longer lasting, high-quality products. Competition will stem more from performance quality and technical differentiation, rather than only price. Similarly, “Rebalancing” means that country of origin will not matter as much in the competitive environment as quality.

Nie’s predictions seem to put significant faith in the discerning end user, trusting that customers will look beyond price and force of habit when making their decisions, understanding how important it is to have a long-lasting product. He commented that a few decades ago, individual consumers mostly understood what to buy from conversations with their workshops and mechanics. Today, however, drivers—especially young ones—look to the Internet to buy their lubricants, making them more informed on the various options.

Nie mentioned the internationalisation of his own company, which is one of the ways that companies cope with a slowing market. Sinopec’s lube blending plant in Singapore, inaugurated in 2013, is the company’s first plant outside China. According to Nie, it will have produced 100,000 tonnes of lubricants for the Asia-Pacific market during its first three years in operation.

During the same session on the Chinese market, Benny Cao of Lubrizol China also offered insights on today’s and tomorrow’s generation of Chinese motorists. “It’s really hard to change customer behavior, to be honest,” Cao said, so the key is to offer them products that are needed, in the place they are needed. More and more, Chinese drivers want to buy a second car, and a larger car such as an MPV or SUV, he said. Cao attributes this to the growing middle class as well as the second-child policy, which was implemented as the one-child policy ended late last year.