By Tim Sullivan
 
Sinopec, China’s second-biggest oil company, has integrated its lubricants operations to cope with foreign competition that is expected to stiffen as barriers to trade are reduced.
 
The company pooled several separate businesses to form Sinopec Lube Oil Co., which will have initial sales of 1.2 million tons per year.
 
Sinopec officials said the new business would be better positioned to take advantage of well recognized brand names. Some observers expressed skepticism about the company’s ability to maintain market share.
 
“PetroChina has already done the same thing,” Lithcon Petroleum Manager Joe Rousmaniere said, referring to China’s other nationally-owned oil giant. “Both of them are scared because the foreign brands have better reputations for providing quality lubricants. So they try to improve their image by making big pronouncements like this. But it’s like standing against the tide.”
 
Sinopec is made up of a variety of formerly separate oil companies, and the new company will combine their lubricants operations, including Changcheng Lube Oil Co., Yiping Lube Oil Co., Chongqing and the lubes activities of Gaoqiao Co., Maoming Co., Jinan Co. and Jingmen Co.
 
Officials said Sinopec Lube Oil will work to strengthen domestically well-known lubricant brands, such as Great Wall, Hai Pai and Nanhai, and build a strong export business, too.
 
A great deal is at stake just in the domestic market. China consumes 3.8 million tons of lubes annually, according to Fuchs Petrolub AG, making it the world’s second-largest country market, far behind the United States, at 8.7 million tons, but well ahead of third-ranked Japan, which consumes 2.2 million tons. Moreover, the market has large growth potential as the Chinese populace consumes only 2.5 kilgrams per year on a per capita basis. Annual per capita consumption in the United States and Canada is 31.6 kg., in Western Europe 13 kg. Sinopec has projected that total lubricant consumption in China will grow 3.6 percent per year through 2005.
 
Sinopec currently claims 30 percent of the domestic lubricant market, second to PetroChina’s 50 percent. International companies have been in the market for years but have generally constrained themselves to its high end, leaving the two national firms to soak up sales of low-quality products that dominate the market.

Lube marketers expect competition to become tougher, however, in the wake of China’s admission late last year to the World Trade Organization. Tariffs on lube imports will drop from 9 percent to 6 percent. According to AsiaPort, Sinopec Chairman Li Yizhong said at a May 29 news conference that the new lubricant business has a goal of increasing its domestic market share to 35 percent.
 
“They will try but they don’t quite know what to do,” Rousmaniere said. “The basic problem is that people in China don’t want local lubricants because they think that foreign brands are superior. No amount of reorganization is going to fix that quickly.”