Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.
cri-report.com - China is the world's largest tire producing country, having established a complete industrial system with products of various specifications, and obtained a series of innovative international cutting-edge technological achievements.
Since U.S. tire special protection against China was formed in Sep. 2009, Chinese tire industry experienced overcapacity, and from Jan. to May in 2010, volume of Chinese tires exported to the U.S.A. declined by 15%, and tire export amount experienced a 27% drop, which posed a negative impact on tire demand, and shook the confidence in Chinese market.
However, seen from all respects, Chinese tire industry is still in a promising period of rise. And major tire enterprises still have confidence in future Chinese tire market.
Huge potential of Chinese market also attracts ambitious multinational enterprises. Currently, major multinational tire manufacturers in the world have set up factories in China, whose productivity accounts for nearly a half of the total productivity of Chinese tire industry, and annual output growth is also much higher than the average industrial growth rate. Hence, competition of Chinese tire industry becomes increasingly fierce.
Since a huge amount of rubber is annually consumed in China for tire production and Chinese domestic rubber production fails to meet the huge demand, Chinese rubber consumption is restricted by import.
Due to the droughts in Thailand and Malaysia, natural rubber supply decreases, and stimulated by loose currency policies, proportion of natural rubber costs changes from traditionally 40% to over 50%, having a huge impact on production and operations of tire enterprises, and resulting in a substantial decline in profits. In 2010, total profit dropped by 21.08% over 2009.
In China, low entry barriers, loose access conditions and corporate large-scale blind expansion lead to overcapacity of tire enterprises, resulting in fierce market competition. Chinese tire enterprises show the tendency of homogenization, weakening their advantages. And Chinese tire enterprises lack independent brands, and have lower requirement on technology and environmental protection than those in developed countries.
Under the circumstances, the Chinese government put forward a series of policies for the tire industry including tire industrial policies and automobile product recycling technology policy to actively develop the tire industry, guide the development of energy-saving and environmentally friendly automobiles with small emissions, encourage technological advancement, value tire recycling and retreading technology, eliminate a group of tire enterprises without technology, capitals and market, encourage the development of the supporting industries of the tire industry to create supporting conditions for the tire industry development.
In addition, facing the pressure from all aspects, China becomes increasingly rational and experienced after learning from foreign countries and solving the problems according to international regulations and practices. Now, the joint efforts of the Ministry of Commerce of China, the Industry Association and enterprises have formed.
According to the statistics, 45 major tire enterprises realized the sales revenue of CNY 17.18 billion in 2010, increasing by 23.50%. Besides, tire output maintains a substantial increase. And product structure and export pattern adjustment present a new aspect.
Supported by the policies, many Chinese tire enterprises achieve great improvement in innovation, positively establish brand awareness to compete with international brands, and change the impression of foreign clients on Chinese tire products. And the production of rubber has been expanded in some Chinese regions aiming to reducing the dependence of Chinese tire industry on imported rubber.
On the one hand, Chinese automobile reserve per capita is less than a half of world's average level, and thus automobile consumption still enjoys huge growing space. On the other hand, as investment in infrastructure construction of Chinese emerging markets still maintains the rapid increasing tendency, construction machinery consumption also sees huge growing space.
All will give an impetus to the steady development of the tire industry. It is predicted that in the period of the "Twelfth Five-Year Plan", tire demand will still see a steady and rapid growth.