17/04/2018

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 17/04/2018

First impression of China – Size matters

GDP $11.2tn, 15% of global GDP

Affluent
Ancient culture middle class

28mn new cars

30% of the world

The Great Wall 200mn car park

1.38bn population
3.8bn man-trips during
Chinese New Year 9.6mn sqkm, large territory

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 17/04/2018

Largest Auto Market Since 2009 (and growing...)

• Economy stabilised under the New Normal

• 8th year as the world's leading car market ‒ 30% of production,
15% of vehicle population
• Ownership still by far behind (147 units/1000 capita, compared
to 800 in US, 569 in EU, 551 in Japan) with young car parc

Vehicle Production in China

40
Passenger Commercial
30
Million Units

20

10

0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Data Source: CAAM 2017

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 17/04/2018

Largest Auto Market Since 2009 (and growing...)

• International OEMs still strong in passenger car, but locals

catching up
• Local commercial vehicle OEMs dominant, while bus segment
stagnant and being electrified
• Government supporting New Energy Vehicle despite multiple road blockers

Passenger Vehicle Sales in China by Category Sedan SUV MPV Mini Van
100%

80%

60%

40%

20%

0%
2010 2011 2012 2013 2014 2015 2016 2017
Data Source: CAAM 2017

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 17/04/2018

Emission Regulation is the Key Driver

Planned/Implemented Predicted Unknown

2005 2010 2015 2020 2025

Emissions Euro IV/4 Euro V/5 Euro VI/6 Post-Euro VI/6
Euro VI/6 also requires in-service
Test cycles ESC+ETC+ELR WHSC+WHTC+WLTP conformity testing
EU CO2 / CAFC Monitoring of CO2 emissions followed by mandatory limits

Emissions EPA 04 EPA 07 EPA 10 EPA 10+Tier 3 (in line with California LEV III) for light-heavy duty

Test cycles FTP transient FTP transient cycles + SET + NTE test As from 2007+HD-UDDS and HD-SFTP for light-heavy duty
cycles
US-Federal

Emissions China III China IV China V China VI

Additional Ministry of Transport
Test cycles ESC+ETC+ELR ESC+ETC+ELR+WHTC WHSC+WHTC standards also apply

China CO2 / CAFC Phase 1 Phase 2 Phase 3

• Chinese regulator speeding up with ambitious targets

• China VI strongly indicates the necessity of DPF/GPF
• Turbocharged or natural charged gasoline direct injection
and downsizing of the engine triggers LSPI
• Shifting base stock market provides new formulation opportunity
• Total cost of ownership becoming more important to fleet managers

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 17/04/2018

Highly Competitive, Dynamic Marketplace

• Blending capacity far exceeding Lubricant Market Production in China

demand – very competitive, -8% +5%
high cost sensitivity 8
+2%
7.34 7.22
• State-owned oil companies 6.74 6.87
7
1.36
have very strong presence 6 1.46
1.48
1.42
Million Tonnes

• International oil leaders 5 1.79

1.88
already established with 1.70 1.74
4
superior brand quality 0.23
3 0.16 0.19
0.17
• Local private blenders
2
growing due to vast
1 3.96
distribution network, 3.46 3.50 3.67
connection to local OEMs, 0
support from financial market 2014 2015 2016 2017

Industrial Other Automotives

HDD PCMO

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 17/04/2018

Highly Competitive, Dynamic Marketplace

• Market becoming better Lubricant Market Production in China

regulated with maturing -8% +5%
competition law regime with 8
+2%
7.34 7.22
traditional channels being 6.74 6.87
7
challenged and emerging 1.36 1.48
business models 6 1.42 1.46
Million Tonnes

5 1.79
• Car owners becoming more 1.70 1.74
1.88
knowledgeable and are 4
0.23
willing to pay for 3 0.16 0.17
0.19

customization 2

• Imports enjoy a quality 1 3.96

3.46 3.50 3.67
premium given a suitable 0
go-to-market strategy in 2014 2015 2016 2017
select segments Industrial Other Automotives
HDD PCMO

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 17/04/2018

Future PCMO ̶ Higher Quality, Lower Viscosity

Market Trends Implication to PCMO

Local consumers become more International OEMs start to develop engines
demanding for customisation and even specify oil locally, e.g. GM PATAC

OEMs offering global platform to Chinese

market with globally standardised oils Quality upgrade accelerates, SN will
become the mainstream by 2020 while SL
and below grades diminishing
Car owners become more technology conscious

Government sets ambitious FE target: FE is the all overwhelming imperative, lower

China CAFE: 5.0L/100km in 2020 viscosity oil more desirable than ever (e.g. 0WX)

Lubes formulation with reduced

China VI requires installation of GPF
SAPS expected to prevail

TGDI and GDI engines account for Carefully re-balanced formulation to address
over 40% of new passenger cars oxidation challenge and minimise LSPI event

OEM approved oil enjoys Further fragmentation of the market, increasing

quality credit in the market share of ACEA and OEM approved oils

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 17/04/2018

Future HDDEO ̶ Reduced Ash, Visible Fuel Efficiency

Market Trends Implication to HDDEO

Top 5 local HDD OEMs account Highly concentrated market with extreme
for over 80% of the market competition (e.g. quarterly tender)

Fast upgrade of emission standard:

Quality upgrade accelerates, CH-4 already
Only 3 years between China V and VI
the largest category and being replaced by
CI-4 by 2020. CF-4 and below will keep certain
Very young fleet of commercial vehicle share (agricultural) but become insignificant

15W is the mainstream but lower viscosity

FE pressure on OEM will emerge
oil expected to come (5W or even 0W!)

Lubes formulation with reduced

China VI probably requires DPF
ash expected to prevail

Extremely long drain interval Reliability plus durability imposes

as a differentiator of OEMs new challenge of oil formulation

Local OEMs and regulator become

Start of development of local HDD spec (D1)
more vocal for specification

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