Tire industry sees new wave of investment fever

Lately, Chinese premier Li Keqiang reiterated the importance of dissolving excess capacity, showing the significance and difficulty of de-capacity.

Tire industry is with excess capacity, but a few producers have added capacities lately and there is a new wave of investment fever for capacity expansion.

Is that against the spirit of the central government?

New capacity of over 50 million tires

In the first half of this year, several domestic tire producers announced their expansion plans, with new capacities exceeding 50 million tires when these programs start operation.

Currently, China’s tire capacity is severely in excess, the average capacity utilization of the industry is a bit more than 60%, which means about 40% capacity is excess capacity.

A senior executive of a tire producer said China’s tire industry is under reshuffle, and the operation of tire producers is quite different.

At this moment, some industry leaders with higher capacity utilization and sales are preparing for their structure after the industrial reshuffle.

Some tire producers in Shandong province have outstanding performance.

For instance, Triangle Tire’s expansion program progressed well and its capacity in 2017 is expected to grow 20%.

Hixih Rubber’s new tire program has an overall annual capacity of 14 million tires.

Subsidiaries of Hengfeng Rubber & Plastic have also been actively expanding their capacities.

Qingdao Fulin Tire is transforming itself from a tire trader to a tire producer.

“Calm” corporate investment?

This round of capacity expansion is different from the investment fever a few years ago, said the executive.

Lucrative tire industry attracted an array of enterprises to set up tire plants a few years ago, some investors with no experience also diversified into the industry, which result in severe overcapacity and homogeneity competition.

Today, the government puts strict restriction on excess industries, and the expansion programs are fruits of “calm” planning.

The tire industry is in a mixed war of upgrade and transformation, and it is necessary to add new capacity with prospect.

De-capacity aims to dissolve outdated capacity, quality capacity is not in excess, and the target of de-capacity is to make room and to create a better environment for quality capacity.