Shell lubricates Chinese operation

Shell increased its presence in China yesterday by buying a controlling stake in the country's biggest independent manufacturer of lubricants.

The price paid by Shell for the 75 per cent shareholding in Tongyi was not disclosed. But the deal will increase Shell's share of China's lubricants market to 9 per cent, making it the third biggest player behind the two state-controlled giants Sinopec and Petro-China.

Tongyi has revenues of about $375m (£197m) a year and has three lubricant plants with a total annual capacity of 600,000 tonnes.

Shell will continue to market its own lubricants and those of Tongyi under separate brands. The Chinese lubricants market is potentially vast, given the rate at which sales of new cars are growing. It is already four times the size of the German market and half the size of the US market. It is forecast to continue growing at an annual rate of 10 per cent until at least 2010.

Shell has so far invested a total of $3.5bn (£1.8bn) in China, not including the Tongyi stake.

It has a petrochemical plant at Nanhai in Guangdong province and a joint venture with Sinopec covering 200 petrol stations.

The Tongyi deal is Shell's second downstream acquisition this year. In March, it bought a bitumen business from its rival Koch Materials China, immediately doubling its presence in the market.