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China Tire Report – May 2018

This is the latest summary of our analysis of China’s tire industry. We publish a weekly report on the tire industry in China. It is the only source of information in the English language for those who want to keep up-to-date with commercial, legislative, policy and recycling developments in the tire industry in China.

Since this was distributed to our subscribers at the end of April, there has been some significant news affecting the China tire industry – notably the EC declaration of anti-dumping duties on TBR tires imported from China. Our subscribers already know about these developments and can make decisions based on this intelligence, but readers of this column will have to wait another month before finding out.

Subscribers to our monthly newsletter also saw this column a couple of weeks ago.

China’s tire industry in April

This month, most of China’s top tire makers have reported their annual results. The general picture is that profits have plunged, even though overall revenues were up by between 15% and 20% over the year.

This gives us the opportunity to publish our listing of top tire makers in China:

Rank 2017 Name 2017
Revenue
Growth

YoY

2016
Revenue
1 Zhongce 22,736 23.7% 18,383
2 Giti 14,710 12.0% 13,137
3 Linglong 13,913 32.5% 10,499
4 Sailun Jinyu 12,645 13.0% 11,191
5 CST Xiamen 9492 7.0% 8,872
6 Xingyuan 8276 24.8% 6,631
7 Triangle 7921 16.1% 6,825
8 Michelin China 7004 13.0% 6,198
9 Guizhou Tire 6970 24.7% 5588
10 Double Coin 6693 13.4% 5,903
11 Double Star 6633 -8.6% 7,257
12 Aeolus 6307 (est) N/A 5,773
13 Pirelli 5703 29.1% 4,417
14 Prinx Chengshan 5472 25.9% 4,347
15 GST 3765 -6.8% 4,041
(Figures in Million CNY), refers to sales within China

At the end of April, Linglong, Triangle and Fengyuan all reported strong sales growth Fengyuan topped the list with a 42% increase in revenues. Linglong and Triangle reported sales increases of around 32% and 18% respectively.

In terms of profit, Linglong saw a small increase, while profits at Triangle and Fengyuan  fell by around 50%.

The annual figures are broadly in line with China’s tire industry overall results: revenues are up by 15%-20% across the industry, reflecting price increases at the start of 2017 and at the end of the year. Profits, however, are down sharply, based on increased raw materials costs and output limitations due to environmental restrictions.

Meanwhile Aeolus and Guizhou Tire have reported huge losses

Shen Jinrong, chairman of China’s largest tire maker, Zhongce Group said that most tire makers are operating at a loss, and that any profits are more about government support, land compensation and other non-core business activities, than they are about making and selling tires.

Prices rising

As a result of this macro picture, we are seeing some significant efforts to raise prices, though the strong of announcements seen at the beginning of April have now eased.

However, many importers of tires to Europe have raised prices ahead of an announcement expected in the first half of May of anti-dumping duties and countervailing duties on truck tires imported from China.

Trade barriers

During the meeting of the CRIA in Qingdao at the very end of last month, a series of high-level speakers gave their views on progress in the China tire industry.

Top of the agenda has been trade barriers being erected against Chinese tire exports.

These Include:

  • India’s requests for countervailing investigations against Chinese TBR
  • Pakistani proposals that due to the increase in China’s tire exports, Chinese tires should be changed from free trade imports to tariffed imports
  • The European Union’s Chinese TBR double investigations into alleged dumping and subsidies involves approximately USD900mn. CRIA reports that, “proposals for a similar ‘Dual’ investigation into PCR tires currently underway.” Though we have not heard anything official along these lines.
  • The US double investigation into PCR tires from China and the subsequent duties involves USD2000mn, and, according to CRIA, it is “very likely that the TBR double investigation will be re-established”. Again, this appears to us to be false rumours, as our contacts in the United States are not aware of such moves, beyond the Retread Instead campaign launched by independent retreaders.

We have analysed the EC imports of TBR tires. The industry told us that the threat of duties from the EC would kill any TBR imports from China. That view was not supported by the evidence. EuroStat data for TBR imports from various countries, including China in February shows no significant change, except a big jump in imports from Taiwan.

Factory upgrades

Meanwhile, we note that Giti is upgrading its Hefei factory, Zhongce is moving the Chaoyang factory. GST is building a TBR & PCR plant in Cambodia. Zhongce is building a huge 6.7mn unit/year TBR plant in the Xiaya Town, Chunqiu Factory Area of Hangzhou. Two companies, JinHuaDa Rubber (쏜빽댐) and ShuangDeLi Rubber (崗돤적) are both building OTR tire factories in Weifang.

Many of these projects are being driven by environmental constraints, with provincial governments getting ever-tougher in their efforts to improve air quality.

A series of top-name companies –both Chinese and Western –have been added to the list of ‘key polluters’ in China. Many of them reported by local residents who can smell the rubber, even if the emissions are not as poisonous as some other factories these local whistle-blowers are triggering continued investigations by the authorities.

Finally, Triangle has officially launched its US tire factory with a ceremony in Weihai, attended by local party officials. This appears to remove some of the uncertainty surrounding the project. Local officials had sad that Triangle should proceed cautiously with the US project, but this latest development appears to show that Triangle now has the support of local officials for the US factory.

Kumho Tire and Double Star

After the flurry of activity in Korea over the Easter weekend, we have had a chance to discuss with various parties about the propects for Double Star’s acquisition of shares in Kumho Tire.

We give a detailed analysis on page 13-14 of our monthly Tire Intelligence report, but some significant information has emerged since Easter.

First, this is not a done deal. We believe it will go through, but Kumho Tire needs to get approvals from the Stock Exchange and existing shareholders before issuing more shares – the plans call for the number of shares in issuance to rise by over 80%.

Second, We think the Korea Development Bank has called in some hatchet men to slash spending across the Kumho operations. In some cases, the cuts are so deep as to damage the business. But probably, we will see a substantial improvement in the bottom line in next quarter’s results.

 

– David Shaw

This article was printed in our monthly newsletter , published at the end of April, and summarises news and developments from our weekly report on the tire industry in China. For the latest information on the tire industry in China and the rest of the world, see our website at www.tireindustryresearch.com

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