The overall performance of Chinese tires in the first quarter of 2014 was fair. However, the market situation changed rapidly after May and became more and more severe. In the second half of the year, under multiple pressures, the Chinese tire industry may no longer be “optimisticâ€.
The first heavy pressure stems from the low price of rubber. The low rubber price is good for corporate profits, but due to the long-term downtrend in the price of rubber, and the possibility of reversal is not seen, the price of tires will be severely hit. In the first half of 2014, the overall decrease in tire prices in China reached 20%, which was significantly higher than the decline in rubber prices during the same period and continues to show a downward trend. According to statistics, the comprehensive price index of Chinese car tire dealers in May was 80.83, a decrease of 3.44% from the previous month; the comprehensive price index of Chinese truck and car tire dealers was 71.46, down 2.6% month-on-month.
Recently, in order to complete the half-year sales target, some multinational tire manufacturing giants have also taken the initiative to increase preferential prices in advance. These price cuts or promotions will trigger further declines in Chinese tire prices. It is expected that in the second half of 2014, the gross profit rate of tire companies will decrease significantly.
The second heavy pressure stems from excess capacity and high inventory of tires. Since 2013, the “optimistic†atmosphere in the tire market has stimulated a number of blind investments and the structural excess capacity of tires has become more serious. According to statistics, in 2013, China added 15 million sets of all-steel tire production capacity and 100 million sets of semi-steel tire production capacity. From the current tire equipment procurement estimates, in 2014 will increase the full steel tire production capacity of 15 million sets and 150 million sets of semi-steel tires. Overcapacity results in the operating rate of most small and medium-sized tire companies being below 70%.
Due to the low natural rubber content, tire manufacturers generally increased their output at the end of 2013 and early 2014, raising the stock rate. Tire enterprise stocks are now up to one and a half months of production, which is about 50% higher than the normal value. Enterprises are counting on sales growth in the second half of the year to digest stocks, but this is unlikely from the current transportation index.
Excessive production capacity and high inventory will adversely affect the tire prices. Even if there is a certain increase in tire sales, sales will not turn positive. Tire investment will usher in a turning point.
The third pressure stems from the United States' double counter investigation. On June 3, the United States Steel Workers Union (USA) filed an application with the US International Trade Commission requesting the initiation of anti-dumping and countervailing investigations on passenger car and light truck tire products from China.
Based on experience, the double counter investigation application is likely to be passed. It is expected that in October 2014, the U.S. government will have the possibility of restarting the implementation of special ad valorem tariffs on China's tires. The rate of increase will be 25% to 40%. China's passenger car and light truck tires are highly dependent on the U.S. market, accounting for more than 50% of China's total tire exports. If the United States implements dual countermeasures, it will have a huge impact on the Chinese tire market.
The author believes that in the second half of the tire industry should resolve the pressure from three aspects: First, the government should take measures to stabilize the rubber prices, such as increasing natural rubber storage, establish a commercial storage mechanism, establish a natural rubber stabilization fund; Second, should be based on the "tire industry "Entry conditions" for product upgrades, green production, inhibiting the structural excess of tires; Third, companies hold a team to respond to the double-op, fight for the US government to not file or reduce the tax rate, while vigorously developing emerging markets.
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