Raw materials supply tight domestic tire companies have no choice but price increases

In 2011, the tire industry is mixed: On the one hand, the global economy is picking up and automobile sales are growing, and the demand for tires has grown significantly. On the other hand, the tire industry is facing the challenges of rising raw material prices, long-term foreign direct investment and increasing competition in the domestic market.

In 2010, the tire market was prosperous in both production and sales. In 2010, although the tire industry in China suffered multiple hardships such as the impact of the US tire protection program, the entire industry maintained a large increase in sales revenue, output, and foreign exchange earned through exports, adjusting the product structure and export structure. Other aspects showed a new atmosphere. According to incomplete statistics, the sales revenue of 45 major tire companies in China reached 17.18 billion yuan, a year-on-year increase of 23.5%; of these, 41 companies’ sales revenue increased or remained unchanged. Hangzhou Zhongce, Triangle Group and China Jiatong are the first companies to enter the world's $2 billion tires club.

In 2010, the structure of tire products has undergone certain changes. The production of radial tires continued to maintain double-digit growth, with a growth rate of 19.6%; the output of all-steel truck tires increased by 21.4% year-on-year, and the output of bias tires was basically the same as last year. The radialization rate of tires has further increased from 83.6% in 2009 to 83.9% in 2010.

Last year, China’s tire exports were strong, with new features such as export prices, geographical location, and product structure. Among them, the export delivery value increased by 36.4% year-on-year, and the export delivery volume increased by 18% year-on-year; the export products were adjusted from middle- to low-grade products to medium-to-high-end products, and the export prices were favorable; the United States exported fewer passenger tires to the United States, but expanded Africa, the Middle East, Tire export markets in Russia and other regions have reduced the impact of the US Tire Special Protection Program on China's tire industry to a low level.

It is predicted that after entering 2011, the Chinese tire market will continue to be the fastest growing market in the world, with a market size of approximately US$8 billion, accounting for 9% of the world’s tire market share. With the shift of the world's tire manufacturing centers to the Asian market led by China, it is expected that the Chinese tire manufacturing industry will continue to grow rapidly in the next few years.

The sharp drop in revenue growth margin in 2010 has just entered 2011. In stark contrast to the impressive performance of the auto vehicle segment, the tire-listed companies have changed their performance in 2010 due to the sharp increase in rubber prices.

Since June of last year, natural rubber on the Shanghai Futures Exchange has started to rise, breaking through 30,000 yuan/ton last October. On January 19 of this year, the price of rubber broke the mark of 40,000 yuan/ton in one fell swoop and rose to 4,35500 yuan at the highest. Although as of February 18th, Shanghai natural rubber prices closed at RMB 41800/t, down 2.8% month-on-month, but they still hovered above the high of RMB 40,000/ton.

The consequence of skyrocketing prices is that tire manufacturers have suffered serious losses. Since the cost of rubber accounts for approximately 50% of the total production cost of tires, for tire manufacturers, rubber prices are one of the most sensitive aspects of tire manufacturers and directly determine the profitability of the company. According to the statistics of the China Rubber Industry Association, profits of China's tire companies fell by 22% from January to November 2010, and the loss reached 26%, while the loss of the entire industry was nearly 50%. The more companies face production, the more serious the loss is.

What worries companies more than performance changes is that the winter of the tire industry is far from over. Some analysts pointed out that from the current situation, the days of tire companies in 2011 may still be difficult. Because overseas liquidity continues to spread due to external easing policies, overseas rubber prices may continue to rise. China has become the world's largest importer of natural rubber, and its foreign dependence on rubber has reached 70%. In addition, rubber prices in the domestic market are also fully linked with the international market, so the cost pressures for tire companies this year may be even greater.

How to overcome the cold winter in 2011 Since the rising cost trend cannot be reversed in the short term, how will tire companies survive this cold winter?

At the China National Rubber Industry Association's recently held tire economic analysis conference, many participating companies, including Aeolus Tyre, Nguyen Tire and Linglong Tire, stated that in order to solve the current tire industry difficulties and stabilize natural rubber prices, the state should The market puts on the state reserve rubber and at the same time cancels the import tariff of natural rubber as soon as possible.

However, people in the industry said that although the country's throwing away of stored rubber can play a role in restraining domestic rubber prices from rising too quickly in the short term, the state's rubber reserves are limited, and domestic rubber prices are difficult to be truly suppressed. Businesses still face significant cost pressures. For tire manufacturers, there are two most direct ways to deal with rising costs.

The first is to increase product prices. Since 2011, global multinational tire companies and domestic tire companies have basically formulated tire price increase programs again, mostly in the range of 5% to 10%. In this case, domestic companies such as Shuangqian, Triangle, Hangao, Guilun, Fengshen, Linglong, South China and other tire companies also raised the prices of domestic tires by 5% to 8% and exported tires by about 6%. However, based on previous expectations of tire price hikes, early-stage dealers have increased their inventories, and it has been difficult for tire manufacturers to pass on cost pressures to downstream distributors. And in the automobile industry chain, the ability of domestic parts companies to price game is not strong.

Second, with the Ministry of Industry and Information Technology in late January, the Ministry of Industry and Information Technology issued the "Guidelines for the Comprehensive Utilization of Waste Tires", which requires the construction and standardization of waste tire recycling systems to support the development of the tire retreading industry. At present, many companies are quietly developing their tire retreading business.

At present, China's tire renovation rate of less than 5%, and more layout in the refurbishment of truck tires and giant tires, car tire renovation is almost a blank, while the proportion of developed tires in the renovation of 45%. Because the use rate of retreaded tires can reach 70% to 75% of new tires, and tire retreading can not only help companies effectively hedge cost pressures, it is very likely to become a new road for the production of tire manufacturers and the wrestling point.