Frustration in overseas market escalates overcapacity of tire industry

China’s Shandong province took the lead in reducing tire capacity this year.

Guo Shuqing, governor of Shandong province, said on January 24 during the province’s ongoing NPC and CPPCC sessions that to firmly reduce the overcapacity of seven heavy-pollutant high-energy-consumption industries, including tire and steel.

The frustration of Chinese tire companies in developing the oversea markets has escalated overcapacity of the industry.

China becomes the largest tire exporter

Explosive development of tire industry in 2009 made a lot of companies prosper. Driven by the interests, many of the companies expanded their production irrationally. Some governments facilitated the expansion of local tire industry to the extreme, even by lowering the entry criteria, thereby gave a boost to capacity investment of low-end tires.

In 2013, domestic investments primarily focused on Shandong province centering on Guangrao.

Many tire producers targeted at overseas markets and China soon developed into the world’s largest tire producer and exporter.

In 2014, China’s output of radial-ply tires was up 8% year on year to 630 million, which accounted for more than 30% of the world’s total. And 40% of the tires were for export.

The U.S. stood at 30% of China’s tire exports in the year and was the largest foreign market of tires produced in China. Producers of passenger and light truck tires were highly dependent on the U.S. market.

Frustration in overseas markets

On Aug. 10, 2015, the U.S. Department of Commerce imposed anti-dumping anti-subsidy taxes on passenger and light truck tires from China, which severely restrained China’s export of passenger and light truck tires.

In the first four months of 2015, China’s tire export to the U.S. dropped 29.7% year on year. More than 200 Chinese tire producers with 3.37 billion dollars worth of products were involved in the anti-dumping and anti-subsidy probe. Over one million workers in the tire industry chain were threatened by lower wages or losing their jobs.

Statistics released by China Rubber Industry Association show that in 2015, the rate of capacity utilization of tire companies involved in the probe plunged from 90% to around 55%.

The anti-dumping and anti-subsidy probe of the U.S. against China’s tires resulted in sharp decline of China’s tire exports to the country and escalated the overcapacity crisis of tires in China.

After that, the European Union refused to certify tires failing to meet the second-phase criteria of the Labeling Law, implying that from November 2018, EU will prohibit the sales of unqualified tires.

So the Chinese tire companies turned to the Middle East. On Oct. 22, 2015, GCC Standardization Organization issued a circular, saying from Jan. 1, 2016, GCC countries would implement the tire labeling law, thus making it harder for Chinese tire companies selling their products to the region.

Qian Ruijin, chief engineer of Double Coin Group, said foreign brands have taken a large proportion in China’s auto industry. In the Sino-foreign joint ventures, foreign investors, particularly the Japanese and the South Korean, wouldn’t consider using Chinese tires, in a bid to protect suppliers of their own countries. Such phenomenon also induced in overcapacity of tires made in China.

Large amount of unsalable tires force many tire producers to stop work or cut production. Some export-dependent manufacturers even confront bankruptcy.