Tireworld Insight: Southeast Asia turmoil affects tire industry

The ongoing political turmoil in Thailand and violence in Vietnam have cast a negative impact on the rubber and tire industry, market observers say.

Thailand, Indonesia, and Malaysia produce over 70 percent of natural rubber around the globe.

-- Dagong downgrades Thailand rating outlook to negative

Dagong Global Credit Rating Co., China's domestic rating agency, announced in late May that it had downgraded the rating outlook of Thailand from stable to negative mainly due to lasting political turmoil.

The political turmoil is unlikely to be alleviated in the short term, and thus will severely hinder normal economic activities, adding to the shrinking potential for growth, the agency said in a statement.

"Over the long term, the lasting political instability makes it difficult for the Thai government to concentrate all the advantageous resources on the upgrading of domestic industries," it said.

Dagong projects that the Thai economy will grow at a rate of 1.3 percent in 2014 and 2.5 percent in 2015, down from 2.9 percent last year.

The agency maintained both the country's local and foreign currency sovereign credit ratings at "BBB" on its solid industrial basis, growth potential and abundant foreign exchange reserves.

-- Tire industry affected due to ongoing violence

Chinese leading tire maker Sailun Tyre said in an announcement that its plant in Vietnam had to suspend operation for five days due to the violence and its performance in the stock market had also been affected as rumors spread.

Sailun is not the only Chinese tire firm affected in the recent turmoil. Hangzhou Zhongce Rubber Co., Linglong Tyre, and Shandong-based O’Green tire firm have all established tire plants in Thailand, and the continuing turmoil could severely dampen their profitability, analysts noted.

In mid-May, a series of riots hit foreign companies in southern and central Vietnam, leaving five Chinese nationals dead, around 20 foreign factories burned down and some 1,100 foreign companies affected.

On June 6, a total of 12 domestic and international insurance agencies offered in advance 114.7 billion Vietnamese dong (5.43 million U.S. dollars) for 113 violence-hit enterprises.

Among those, 87 are Taiwanese investors, three Singaporean, four China's Hong Kong and three South Korean ones among others, according to Vietnam's Ministry of Finance.

(Edited by Olivia, olivia@tireworld.com.cn)