Economic growth vs Clean air: The drivers for Lubricants specifications in China Diana Shen June 2014

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OATS –Oil Advisory Technical Services  World’s Leading Database of Equipment recommendations  Manage over 400 websites – B2C and B2B  in over 25 languages, including Brazilian, Chinese, Russian, Korean  Over 2 million hits/month  Address the questions:  Which oil?  Active in China since 2008

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China – Extraordinary Economic Growth Up- to 2009 Export led manufacturing Post 2009 Infrastructure investment –Road, railways, cities Re-focusing towards internal consumption and consumer products Trusted, Proven, Innovative

China – Growth factors Largest Internet numbers globally: - 640m users - 46% penetration Increasing use of Mobile access Lubes market Now largest in the world Fastest growing Trusted, Proven, Innovative

About OATSChina Economic/Market SituationPassenger cars & CommercialSummary

Trusted, Proven, Innovative The past 5 years China Car sales figures Total : 100m cars: Over 50% under 5 years One of youngest car parc in the world >70% from International firms source data: China Association of Automobile Manufacturers Sources: China statistical year book 2012; National Bureau of Statistics China; CPCIF; Energy policy Elsieriver Ltd Car Sales

Trusted, Proven, Innovative Switzerland (2014) People: 700,000 Release new car :70 Detroit (2014) People: 800,000 Release new car : 30 Paris (2012) People: 1,300,000 Release new car :80 Frankfurt (2013) People: 400,000 Release new car :50 Tokyo (2013) People: 840,000 Release new car :30 Beijing (2014) People: 1,000,000 Release new car: 180 People New car China auto show in Beijing April leading “auto” market

China Auto Show 2014 in Beijing- April Trusted, Proven, Innovative 180 New Cars 79 New Energy 14 Countries 71 Concept Cars 1,000,000 People 1134 cars exhibited

The price of success- Beijing today! – People at risk Trusted, Proven, Innovative

BJ Bad Air days Trusted, Proven, Innovative

Air Quality – BJ Now! Trusted, Proven, Innovative

Tai Zhou- Hazardous Trusted, Proven, Innovative

PM2.5: Beijing Vehicles responsible for 31% of emissions US Emission

Economic Growth vs Health Trusted, Proven, Innovative China’s State Council Ministry of industry Ministry of Environmental Protection Ministry of Health etcetc. GDP Pollution Health Legislation Specifications

China State Council – 5 Year Road Map Trusted, Proven, Innovative Policy for each industry Power, Steel, Cement, Sewage plant, Paper, Livestock Vehicle PM2.5 Led by key cities Cleaner air Quality oil Cleaner energy!

Regulations Vehicles - 1 Trusted, Proven, Innovative Auto-License Lottery: Beijing city's regulation, One car per driver Own only one car Lead cities: Beijing Shanghai Jiangsu etc. Road Space Rationing : License plate policy : Off road - one day per week Petrol fuel China IV has already implemented all over the country. Lead Cities: China V already implemented (be expanded later)

Trusted, Proven, Innovative Pollution affects technology Reduced engine size Variable valve actuation Cylinder management Energy improve Turbo EV/Hybrid ? Driving the better fuel and better lubricants International OEMs driving the changes Oil Specs New tech/ energy Legisl ation Legislation & Technology Driving Changes

Which oil is the OEM recommending ? Trusted, Proven, Innovative 2012 (3000~7500Km) 2014 (5000~15000 Km) BuickGM 6094M GM 4718 SM 5W-30 GM 6094 M, DEX TM FordA5/B5 WSS-M2C915-AA5/B5 WSS-M 2C929-A 5W-30 VW /50400 AudiVW W-40Hybrid 50200/50400 HyundaiSM 5W-20/5W-30SM 5W-30 NissanSJ/SL/SM 5W-30/5W-40 HondaSL 5W-30/5W-40/0W-20/0W-30SM 0W-20 TOYOTASL/SM 0W-20 5W-20SM/SN 0W-20 Great wallSJ~SM 5W-30SM 5W-30 CherySJ 10W-40 5W-40SL 10W vs 2012: longer oil interval, improved oil quality and lower viscosity

Reality: What’s in garage? Trusted, Proven, Innovative 2012 SJ/SM only used in JV 2014 SM /SN even in Local OEMs

New warranty policy 2013 Oct 1’st Warranty – ties Consumers to Dealer workshops 60 days 3000KM 3 years 60,000KM Trusted, Proven, Innovative

Mobile and E- commerce will affect the oil market Trusted, Proven, Innovative

Cars Summary China GDP growth bring a cost Pressure China to catch up European standards International JVs drive the technology The technology and legislation impact the oil market place Warranty policy drive 4S garage business Internet and smart phone will take part in the game Trusted, Proven, Innovative

About OATSChina Economic/Market SituationPassenger cars & CommercialSummary

Commercial vehicles in China Local OEM drivers –Overloaded vehicles and roads! –Long distances –High Sulfur fuel Trusted, Proven, Innovative

Commercial vehicles Trusted, Proven, Innovative China production stays in China Dominated by local manufacturers – for now! Challenge to meet new regulations

Regulations - 2 Trusted, Proven, Innovative By the end of 2014, New trucks only meeting China III emission standards may no longer be sold. Existing trucks can continue to be used After January 1st 2015, Diesel vehicles Must comply with China IV Oil Specs New tech/ energy Legisl ation

2010 CF 15W-40 Local 90%+ International 10% Trusted, Proven, Innovative 2014 CH/CI 10W-40 Local 90%Local International JV LNG International 10% Car importParts import 2014 vs 2010 Oil quality improvement 2010 vs 2014: Oil quality jump CF - CH, local domestic still, JV increase More JVs in the future Increased use of imported Engine technology Accelerated adoption of new standards

Trusted, Proven, Innovative SCR: Heavy duty EGR: Light truck China catch up Europe in ? years, US takes ? years

Summary and Implications China growth Conflict – Economy Vs Clean Air? China Standard of living doubled every 10 years for the last 30 years - risen 8 eightfold in 30 years US - doubled every 30 years Faster convergence with European standards both for Passenger Cars and Commercial vehicles Accelerating pressure to use modern Additives and better quality base oils Use of mobile electronic media internet etc. Trusted, Proven, Innovative

Tomorrow ! Trusted, Proven, Innovative