Warming Chinese Tire Market An Illusion?

The Tire Division of China Rubber Industry Association held the 2016 members conference in Shanghai.

Speech addressed by someone at the conference created much of a stir. The speaker was Shen Jinrong, board chairman of Zhongce Rubber Group Co., Ltd.

The content of Shen’s speech was that the increase in capacity utilization of the tire companies in China over the past few months was not truly because of market demand.Actually, the tire companies in China may confront the greatest difficulty ever in history.

Since the beginning of this year, particularly in the past two months, warmth has been felt in China’s tire market. People believe that China’s tire industry will bounce off the bottom soon.

Shen’s words were no other than a cold shower to the industry insiders.

The hope of China’s tire companies for this year firstly came from the increase in raw materials including rubber.

After the Spring Festival, the prices of natural rubber futures grew from around 9,800 yuan/ton to over 13,000 yuan/ton, up 33%; and the prices of spot synthal rose from around 8,000 yuan/ton to over 12,000 tones, up over 50%.

Rising raw material prices boosted the tire prices. A number of tire producers had announced to raise their product prices.

It weakened the expectation on tire retailers’ price cut in China and helped increase the inventory to about 20 days by end-April from nearly zero previously.

At the same time, the capacity utilization of tire producers in China maintained high. Statistics show that over the past two weeks, the average capacity utilization of all-steel tires was generally above 70%, and that of semi-steel tires was over 75%.

But Shen caught some issues in reality that the tire industry should face.

First, raw materials and labor costs kept rising, boosting the overall costs of tire companies up by more than 8%; while the average profit margin of the tire companies was only around 3%, the increment in costs was far beyond what the companies could bear.

Secondly, the anti-dumping and anti-subsidy investigation by the U.S. against tires imported from China will cause significant impact on regular capacity utilization of tire producers in China.

Some tire companies increased their capacity utilization to produce and export tires needed by the U.S. market before June when U.S. court is to make the preliminary rulings.

According to figures presented by the U.S., China’s all-steel tire exports to the U.S. were about eight million, or at least six million. Once the anti-dumping and anti-subsidy tariffs are imposed, at least 5% all-steel tire output capacity will be affected.

Based on aforesaid issues, Shen reminded China’s tire companies to be calm and cautious about present market warming.