Shell unified joint venture lubricant market is facing reshuffle

On September 23, 2011, at the launching ceremony of Shell's "Sustainable Development" promotion action in 2006, Li Jia, general manager of the former Beijing United Petroleum & Chemical Co., Ltd. (hereinafter referred to as Unipec), quietly sat in the crowd, when Shell China Chairman Lin Hao Guang introduced Li Jiashi as the current general manager of Shell Uniform Petrochemical. Lin Haoguang said that he invited Li Jia to hope that he and the unified company can integrate into the Shell corporate culture.

The day before, Shell purchased a 75% stake in China’s private-owned company Petrochemical. Li Jia said in an exclusive interview with reporters that the merger will change the current pattern of China’s oil market once again. Is it possible to unify this private enterprise in China with the global energy giant and retain its self? Prior to this, the domestic lubricants market has always been “three points in the world”, among which, large state-owned lubricant companies represented by Sinopec and PetroChina occupy 60% of the market share; multinational lubricant companies represented by Shell, Mobil, BP, and Castrol, etc., occupy approximately 20% of the market share; local private lubricant companies represented by Unipec, etc. segment the rest of the market. .

Shell merger and acquisition of petrochemical into a leader

On September 22, 2011, the global oil giant Shell authorized its Shell China Holdings Pte Ltd to purchase Beijing Uniform Petrochemical Co., Ltd. and Uniform Petrochemical (Xianyang) Co., Ltd. According to prior agreement, Shell obtained a 75% stake in Unipec. Shell China Group has become one of the top three domestic lubricants brands through mergers and acquisitions of the powerful private-sector company Sinopec. The transaction helped Shell rank third in China’s lubricants market and increased Shell’s global lubricant production by 8%. And make Shell lubricants account for 16% of the global market. At the same time, the transaction also put Shell on the top spot in China's lubricants market and became the number one international energy company in China's lubricants market. This clever acquisition will make China's lubricants market once again face reshuffle.

Uniform Petrochemical, established in 1993, has been expanding for 13 years. Uniform Petrochemical has grown to become China's third-largest automotive lube oil production enterprise with an annual production capacity of 600,000 tons. Lubricant is also the first brand of vehicle lubricants in China. Its lubricants products account for half of the domestic low-end market, and have three lubricants blending plant, 2000 dealers and 90,000 retailers. By obtaining a more profitable downstream business through asset portfolios in high-growth markets, it is probably something that many international oil giants including Shell have attempted.

This time with Shell's "marriage", Uniform Petrochemical will realize the complementary advantages of its products and extend its own production and supply chain. However, Huo Zhenxiang, former chairman of the unified petrochemical company, who is now the vice chairman of the joint venture company, is even more blunt: In order to compete more effectively in an international context, it is necessary to look for changes in brand and market development. The main motivation for this joint venture between Huo Zhenxiang and his team is to seek resources. At present, the world-renowned oil brands — Shell, Mobil, BP Jiashi Duo and Sinopec Great Wall, PetroChina Kunlun, etc., almost all have the support of upstream resources. With the continuous growth of unified petrochemicals, its dependence on imports has become a major bottleneck for further development, making it vulnerable to market competition. Xiang Zhuang dance sword, intended to be public. By the end of 2011, China will completely liberalize the refined oil retail market. Some experts have warned that in the current promotion of the overall reform of the oil and gas sector, the national decision-making authorities should be far-sighted and construct strategic cooperation among state-owned private enterprises, which helps to structure China's future energy security system.

Negotiating confidentiality

In April 2011, it was passed that a multinational company was interested in purchasing nearly 70% of Uni-President's shares, with a valuation of 1.8 billion. Shell and Unipec declined to disclose the exact amount of the purchase. According to some domestic media, the 75% equity bid received by Shell will not be less than RMB 1 billion. “In this cooperation, the confidentiality of both of us has really done a good job. The main reason is that we do not want to trouble the joint venture. It is also the experience of taking over the case of Carlyle’s acquisition of Xugong.” Li Jia believes that Carlyle had to acquire Xugong. The lack of proper secrecy has led to an uproar in public opinion and the government’s attention. This is the main reason why the case has been grounded so far, and cooperation with Shell must also avoid such factors.

It is understood that on September 8, 2011, the Ministry of Commerce and other six ministries and commissions formally implemented the "Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors", stating that the purchase transaction must be submitted to the Ministry of Commerce for approval. However, Huo Zhenxiang, former Chairman of Uniform Petrochemicals and vice chairman of the current joint venture company, disclosed that Shell and Uniform had quietly signed a joint venture agreement on August 2. Before the above-mentioned “Regulations” were issued, the project had already been approved by the Ministry of Commerce. Li Jia revealed that the acquisition transaction was reported to the Anti-Monopoly Office of the Ministry of Commerce Treaty and Regulations Bureau and the State Administration for Industry and Commerce on the same day when the two sides signed the agreement and was soon approved because of the large amount of transactions and the “unified lubricant”. The brand is retained, and the second reason is that in the eyes of the government, the market share of unified lubricants is only 9%, and its acquisition has limited influence on the market.

Early acquisition of funds for acquisition

Speaking of the transaction amount, Li Jia said, "We have signed a confidential agreement for 5 years." Lin Haoguang also only disclosed that the transaction was a one-time cash payment. However, Li Jia revealed that the acquisition amount was finalized at 4:00 a.m. on September 22, because Deloitte, the financial controller of the acquisition transaction, had just made the latest audit data and both parties would negotiate on the basis of the new audit data. The amount of transaction in the corresponding increase in the final film, and at four in the morning for delivery. Li Jia admits that after uniting with the idea of ​​finding a joint venture partner, Unisoft has been in contact with several oil companies at home and abroad, but ultimately chose shells from companies with similar ranks. The price factor is an important factor.

With money, Li Jia made plans for the next step in the unification. “The money is now paid directly to Xiangjia International. Xiangjia International was established when it was unanimously sponsoring the listing. Now there is a unified 25% stake. The next step will be unified to increase advertising costs and promotions. At the same time surplus funds will be put into market construction.” Li Jia said that after the unified joint venture, the annual market policy set at the beginning of 2006 will not change, and the goal of market policy in 2007 will be Some adjustments have been made, but the price system will not change, but will be adjusted according to changes in competitors. Li Jia told reporters that the new unified positioning will soon be established. What is certain is that the unified market share is concentrated in high-end lubricants for vehicles and will not be used as low-end products in the future. Li Jia stated that the unified product is oriented towards customers who tend to use national brands, while Shell's global brand attracts customers who drive foreign brand vehicles or use international brand equipment. Even if both parties are doing high-end markets, they will not be in conflict.

The unified harvest is Shell Base Oil

Since 2011, due to high international oil prices, tight supply and demand, and the supply of basic lubricants, the main raw material for uniform lubricants, has been very tight. In the domestic lubricants market, Uniform Petrochemicals is the only company that lacks its own raw material resources. 80% of the raw material base oil of lubricating oil comes from imports, and the other part is purchased from PetroChina and Sinopec.

“There was a time when it was almost impossible to supply goods because the market for supply problems had a lot of rumors about the need to unify the market. The unified distributors were also very nervous. They often called and asked if they were sitting in this office. Li Jia acknowledged that there was a problem in unifying the previous base oil supply channel because there was no long-term contract, and it was usually a temporary purchase, which caused the base oil not necessarily bought once or had to be purchased at astronomical prices. “In the future, Shell will reserve base oil reserves one month ahead of schedule according to quarterly and yearly plans.” Li Jia said that Shell has global base oil production and is the world’s largest base oil trader, ensuring the foundation needed in China’s business. No problem with oil.

Big two price advantage

In the first half of 2011, due to the tight supply of oil products and high prices, many domestic small-scale lube merchants closed down. At present, there are more than 4,000 lube oil plants in China, estimated to have more than 6,000 brands, of which nearly 30 are foreign-funded enterprises. China’s current consumption and supply of lubricants are between 4.5 and 4.6 million tons per year. Among them, Sinopec and CNPC occupy nearly 60% of the market share; transnational lubricant companies represented by Shell, Mobil, BP and Castrol all occupy approximately 20% of the market share, but occupy approximately 80% of the high-end market share; The local private lubricant companies represented by Unipec, etc., have formed a certain scale on the market with flexible operating mechanisms. In addition to Unipec's use of imported base oil as its main raw material, it can still segment high-end markets. Most privately-owned lubricants companies are in the low-end market and receive raw materials for small and medium-sized refineries.

“Shell and unified joint ventures have little impact on Kunlun and Great Wall, but this merger has made Shell have the third largest market share after the two major groups, which will bring significant changes to the Chinese lube market structure. Competition will Intensified." Li Jia asserted. The reporter was informed that PetroChina and Sinopec have already begun to study the countermeasures and a new round of oil market war is about to begin. Faced with Shell's offensive, how will the domestic lubricant companies respond? The reporters respectively called Sinopec Great Wall and PetroChina Kunlun Lubricating Oil Company on September 25. The answer is: We are actively studying countermeasures; the acquisition of Shell and Uniform. The incident will not comment.

A report released by Klein of the United States entitled "Business Opportunities in the Chinese Lubricants Market 2009" states: "The Chinese lubricants market will grow at an annual rate of 10% in the next five years. It is estimated that by 2020, China's lubricant consumption will exceed that of the United States.” Facing the huge business opportunities in the Chinese lubricants market, foreign companies coveting the Chinese lubricants market are further increasing their offensive. Not only Shell, BP, Mobil, Total and other major multinational oil giants have also stepped up their actions in the Chinese lubricants market. In June 2005, Castrol Oil Group, a subsidiary of BP Group, announced that Dongfeng Castrol Oil Products Co., Ltd. was established with Dongfeng Group, China’s largest commercial vehicle manufacturer; in April 2011, BP invested US$22 million again in Taicang City, Jiangsu Province, China. To build a special blending plant for BP China's industrial lubricants. Bill Klein, vice president and head of the oil and energy business, believes that China's lubricating oil brands must earnestly “fight a difficult fight,” or else Chinese manufacturers may miss the opportunity for development.

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