Chinese tire makers face higher pressure

Chinese tire makers face much higher pressure than foreign competitors during this round of raw material price increase, according to industry insiders.

Tire profits drop much

Shi Yifeng, head of the Tire Branch of China Rubber Association, has recently reviewed on the tire industry in the first three quarters of this year.

In the first quarter of this year, price increase of raw materials such as rubber lifted the tire demand and prices.

In the second quarter, under the strict envrionmental inspections, production of rubber chemicals and carbon black shrank, leading to price increase of tires. However, due to the turbulant raw material market and slack demand from end-users, the tire industry saw a profit decline.

In the third qurater, the tire manufacturers slowed down production to lower stockpiles.

According to China Rubber Association Tire Branch, in the first eight months of this year, its 41 major member companies saw total ouptut increase 8.11 percent from a year ago. Specifically, the ouptut of all-steel tires grew 8.13 percent, and that of the semi-steel tires rose 9.54 percent.

In the first eight months, the total sales of the 41 companies increased 14.5 percent, while thir combined profits slumped 65 percent.

The real situation of the tire industry this year is actually worse than what the financial statements showed, ZC Rubber vice general manager Ge Guorong.

In January-August, the statement of ZC Rubber reported a profit decline of 36.69 percent, while the actual decline should be even larger if counting in the rebates for dealers.

Hard to raise tire price

China used to have cheap labor force and raw materials. Now with the diminishing bonus of low labor cost and low brand premium of Chinese tires, it is difficult for the rising costs of raw materials to be delivered to the tire prices.

The supply side of reform in the tire industry is not completed yet, and it is hard for the domestic tire prices to revive, Ge said. ZC Rubber’s factory in Thailand enjoys a better profit profile than the company’s factories in China.

Chinese auto manufacturers slashed tire prices hard, when the country has a large number of tire makers.

Currently, the natural rubber prices in and out of China are almost the same. However, Chinese tire makers face much higher pressure than foreign competitors, as the the natural rubber accounts for about 35 percent of the overall costs in foreign tire makers, while the ratio is up to 40-45 percent in Chinese tire makers, said Ge.