The “production + service” model is becoming the direction for lubricant companies.

In the post-pandemic era, as demand for lubricants declines, the “production + service” supply-chain model should become the development direction for domestic lubricant manufacturers and distributors. This was the key message conveyed at the second session of the second general meeting of the Shandong Province Lubricant Industry Association, held in Jinan on June 27. At the meeting, experts pointed out that due to the impact of the COVID-19 pandemic, both domestic and international demand for lubricants has declined. Specifically, domestic demand for lubricants is expected to drop by 7% to 10% year-on-year. However, China’s current oil-grade structure lags behind the evolving environmental standards for vehicles; thus, there remains considerable room for improvement in China’s oil-grade levels in the future, which could lead to an increase in demand for lubricants. Zhang Chenhui, deputy director of the Specialized Committee of the National Lubricant Enterprises Alliance, noted that, amid the decline in lubricant demand caused by the pandemic, lubricant companies need to innovate their production and sales models—shifting from a focus on quantity growth to one emphasizing quality enhancement and efficiency improvement. They should develop high-quality, specialized, and niche products, moving away from a single-product structure toward product diversification. At the same time, lubricant companies should also enhance the service levels provided by their sales networks. According to Da Jianwen, head of the expert panel of the Specialized Committee on Research and Application of Special Oil (Wax) Production Technologies, the impact of the pandemic will see domestic sales replacing imports, making it more important than ever to expand domestic sales channels. Nevertheless, in areas such as specialty oils—for example, oils used in vaccines and nuclear power—China still largely relies on imports. Therefore, domestic lubricant companies must persist in pursuing a path of differentiation, specialization, and high-end development, continuously enhancing the added value of their products to meet the new demands of the post-pandemic era.

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Historical China VI Emission Standards and Their Requirements for Engines and Oils

What is China’s Stage VI Emission Standard? “China Stage VI” is the common nickname for the country’s sixth-phase motor vehicle emission standards. The Stage VI standard represents an upgrade over the previous Stage V standard. Compared to Stage V, Stage VI imposes significantly stricter limits on pollutant emissions. Specifically, for gasoline vehicles, the Stage VI standard reduces carbon monoxide emissions by 50%, cuts total hydrocarbon and non-methane hydrocarbon emission limits by 50%, and tightens nitrogen oxide emission limits by 42%. The Stage VI standard is divided into two phases: Phase 6A and Phase 6B. Phase 6A began on July 1, 2020, prohibiting the sale, registration, and licensing of vehicles that fail to meet the Stage 6A emission standards. Phase 6B, starting from July 1, 2023, will similarly ban the sale, registration, and licensing of vehicles that do not meet the Stage 6B emission standards. Currently, some regions have already begun implementing these standards ahead of schedule. How do the emission limits of Stage V and Stage VI differ? Compared to the Stage V standard, Stage VI—especially Stage VI B—significantly improves emission performance. Here’s a comparison of emission limits between Stage V and Stage VI: | Emission Type | Stage V | Stage VI A | Stage VI B | Reduction (%) | |---------------|----------|------------|------------|--------------| | CO (Carbon Monoxide) | 1000 | 700 | 500 | 50% | | THC (Total Hydrocarbons) | 100 | 100 | 50 | 50% | | NMHC (Non-Methane Hydrocarbons) | 68 | 68 | 35 | 48% | | NOx (Nitrogen Oxides) | 60 | 60 | 35 | 42% | | PM (Particulate Matter) | 4.5 | 4.5 | 3 | 33% | To meet the stringent Stage VI emission standards, newly launched vehicles—whether heavy-duty trucks or passenger cars—must adopt new technologies and components in their engines, such as turbocharged direct-injection technology (TGDI), exhaust gas recirculation (EGR), selective catalytic reduction systems (SCR), and particulate filters (DPF or GPF). These technologies are now widely used in engines. The new technologies and components introduced in Stage VI engines place special demands on engine oils: Turbocharged direct-injection technology can easily lead to early combustion at low speeds, requiring lubricants that can effectively inhibit sludge and carbon deposits around the combustion chamber and fuel injectors. Additionally, selective catalytic reduction systems and particulate filters contain precious metals like platinum, gallium, and palladium, which are prone to oxidation and damage; therefore, both fuel gasoline and lubricating oils must have low sulfur and low ash content. To ensure smooth operation and extend the lifespan of Stage VI engines, existing oil grades no longer meet the requirements, necessitating the development of higher-quality Stage VI-specific oils. As a result, the new SP-grade oil standard has been introduced. What is API? API stands for the American Petroleum Institute. The API rating indicates the quality grade of an oil, but it’s important to note that this quality grade does not directly reflect anti-wear performance alone—it represents a “comprehensive quality threshold,” including environmental performance. API ratings are categorized into two main groups: oils for gasoline engines, labeled with “S,” and oils for diesel engines, labeled with “C.” There are also universal lubricants that carry both “S” and “C” designations, compatible with both gasoline and diesel engines within a certain range. Gasoline-engine oils with “S” ratings include: SA, SB, SC, SD, SE, SF, SG, SH, SJ, SL, SM, SN, and the newer SP rating. Why update the standards? In response to increasingly stringent national environmental regulations and energy-saving requirements, automakers are adopting various technologies—including engine downsizing, direct injection, turbocharging, reduced friction, and advanced exhaust treatment and combustion technologies—to further improve fuel efficiency and meet emission standards. For passenger cars, the trend in traditional powertrains has shifted gradually from larger displacement engines to smaller ones: 2.0-liter engines are being replaced by 1.6L, 1.5L, and 1.3L engines, and naturally aspirated engines are giving way to turbocharged engines. These changes all require higher-quality lubricants to provide adequate hardware protection and prevent operational issues, while also leveraging lower viscosity grades to enhance fuel economy. As a result, the lubricant industry faces ever-greater challenges, and updating lubricant formulations has become imperative. From the earlier API SA to today’s API SN, SNplus, and the recently announced API SP, each new standard brings higher requirements for various lubricant parameters. Currently, the mainstream grades in the engine oil market are API SN and SNplus. As the industry continues to evolve, oils of SL grade and below will gradually be replaced by other products. Meanwhile, the SP-grade oil, designed to meet the Stage VI engine requirements and align with national environmental policies, is poised to become the market’s dominant choice in the future.

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Analysis of the Current Development Status of the Upstream Raw Materials Market in the Global Lubricant Industry in 2020: Both Supply and Demand Show Concurrent Growth

The raw materials for lubricant production mainly include base oils and additives. The supply-and-demand situation of these two types of raw materials is crucial to fluctuations in the cost of lubricant raw materials. Regarding the base oil market, in 2019, global base oil production capacity had risen to 1.2 million barrels per day, representing a year-on-year increase of 7.3%. Meanwhile, the global base oil market size was approximately 100,000 barrels per day, with demand in the Asia-Pacific region accounting for about 65% to 70% of the total. As for the additive market, in 2019, global lubricant additive production reached roughly 4.65 million tons, while the global additive market size expanded to US$15.1 billion. 1. Analysis of the Current Supply and Demand Situation in the Base Oil Market: On the supply side, according to data from the "2019 Global Base Oil Refining Guide," global base oil production capacity in 2019 rose to 1.2 million barrels per day, an increase of 7.3% over the 1.1 million barrels per day recorded in 2018. On the demand side, according to assessments by ExxonMobil Asia Pacific, the global base oil market size in 2019 was approximately 100,000 barrels per day, with demand in the Asia-Pacific region accounting for about 65% to 70% of the total. In the future, as utilization rates continue to decline, the base oil market will become increasingly rationalized. 2. Analysis of the Current Supply and Demand Situation in the Additive Market: On the supply side, according to data from the China Lubricant Oil Network, from 2015 to 2019, global lubricant additive supply showed a fluctuating growth trend. In 2018, global additive supply stood at 4.22 million tons; in 2019, global lubricant additive production reached approximately 4.65 million tons. On the demand side, since the 1930s, the global lubricant additive industry has gradually matured, reaching a relatively stable stage with a sizable and steadily growing market. According to statistics from Kline & Co., a global consulting and research firm, and the Shanghai Lubricant Oil Products Industry Association, global demand for lubricant additives increased from 4 million tons in 2012 to 4.65 million tons in 2019, and the market size expanded from US$13.3 billion to US$15.1 billion. Among the demand product structure, dispersants, viscosity index improvers, and detergents accounted for 65% to 70% of total demand; anti-wear agents accounted for about 6% to 7%; and antioxidants accounted for about 4% to 5%.

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