F+L Week 2017 | Anuj Kumar Singh | A Comparative Assessment of the Chinese and Indian Finished Lubricant Markets
Asia has long served as the growth engine of the global lubricants industry. Within Asia, the key growth markets have been China and India. During the 2008-2010 recession, North America and Europe exhibited double-digit declines. In contrast, Asia slowed in 2008 and showed a minor decline in 2009 before rebounding in 2010. Will Asia and in particular China and India continue to drive lubricants market growth? China and India both continued to grow, though for different reasons. Demand growth in China was supported by a massive government-spending program. The stimulus program was very effective in driving demand in the construction and mining sectors. India escaped the worst impact of the recession because it is a “Goldilocks” economy. It is neither too dependent on export-driven growth – like China, Germany, and the Asian tigers. Nor was it too dependent on foreign money – as was the case with some European economies. The Chinese stimulus only postponed the problem. Chinese growth can no longer be driven by exports or investment-led growth. The stimulus resulted in a construction and property bubble. Government efforts to control the bubble resulted in significant contraction of the construction, infrastructure, and other related sectors. The Chinese government is no longer focused on growth (or only growth). It has increased its focus on social stability and improving the quality of life. Poor air quality has put focus on emissions control and fuel economy – with a resultant drive to better quality lubricants. China is thus moving from being a fast growing lubricant market to a market with moderate to low growth, but with a higher focus on quality. The Indian economy benefited briefly from the easy money conditions that prevailed following the recession. Prospects of strong growth were raised after the national election, which resulted in a single party with a majority. However, these growth prospects have not been realized for various reasons. In any event the size of the Indian market and the potential growth is not sufficient to compensate for growth reduction in China. While growth will moderate, India is trying to catch up on the quality front – as demonstrated by the current push for Bharat VI emission norms in the country. A moderately growing Asia with greater focus on quality will have important implications for the global lubricants market. While lubricant volume growth will slowdown, growth in industry revenues will be strong due to the higher share of synthetic, semi-synthetic and other higher value products in the overall market. Competition will also intensify in a flat global lubricants market, with greater presence of second-tier and third-tier brands and growth of OEM brands. While the growth in quality in Asia offers hope to existing lubricant marketers, the slowdown in growth and increased competition will pose major challenges.