Unsatisfactory Q1 Performance of China's Tire Companies

The natural rubber experienced a price hike again in April. After a short period ofskyrocketing, China's futures market cooled down under government regulation and the rubber turned in line with the fundamentals from capital-driven.

"In the meantime, affected by rising natural rubbers, some tire companies had planned to raise their product prices. And the downstream started to response to raw material price hike, rising prices have been passing on to the downstream," according to the latest research report released by Chem99.com.

The business revenues of China's tire companies were unsatisfactory and the situation was diversified with regard to the six A-share listed tire companies.

They are Aeolus Tyre Co., Ltd., Giti Tire Corp., Gui Zhou Tyre Co., Ltd., Qingdao Doublestar Co., Ltd., Sailun Jinyu Group Co., Ltd., and Double Coin Holdings (now Shanghai Huayi Group Corp. Ltd.).

Statistics show that the business revenues of Aeolus Tyre, Giti Tire, and Gui Zhou Tyre had all dropped in the first quarter of this year; while Qingdao Doublestar, Sailun Jinyu, and Double Coin's business revenues had risen, and Qingdao Doublestar even reported an increase of 56.98% year on year.

Aeolus Tyre, Giti Tire, and Gui Zhou Tyre all said in their quarterly reports decline in sales volumes and incomes. But they made greater efforts in dealing with redundant tires and in collecting debts.

Doublestar and Sailun Jinyu said they increased investments in sales and were rewarded with sound growth in business performances in the first quarter.

But the growth of Double Coin was actually attributable to its chemical service growth for the parent company, while the net value of its cash flow generated from business operation declined. The company said it was induced by lower sales prices.

"From those cases we learnt that only two of the six listed tire companies achieved better business performance because of greater sales, the other four had all suffered sales decline and their business revenues in the first quarter were unsatisfactory," said Chem99.com.

In the quarterly reports, all the six firms said lower raw material prices beat down the sales prices.

Chem99.com said prices of natural rubbers went all the way up from March and China's tire exports were better than expected.

Higher raw material prices forced tire companies lifting cost accounting, tightening sales policy and rising sales prices. Such process is a good pass-on effect of natural rubber price hike.

Currently, product inventory and raw material inventory of tire companies are under control.

"However, because of higher costs induced by rising natural rubber prices, tire companies are considering raising their product prices, but they just haven't taken any actions yet," said Chem99.com.