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Chinese Tire Industry Tendency in the 2nd Half of 2009

Since 2008, the outbreak of the global financial crisis has been battering all walks of life greatly. Although Chinese government has adopted a series of policies to stimulate domestic demands and called for an investment tide, its influence on Chinese real economy is gradually becoming obvious. As the important basic industry in the national economy, the rubber industry is also in face with the global financial crisis, the low demand of the downstream and other disadvantages.  Since China is the center of global tire manufacture, the tendency of Chinese tire industry, the main demander of the downstream in the rubber industry is being paid much attention to. In this report, Chinese tire industry tendency in the 2nd half of 2009 will be discussed.

According to the estimate of Chinese Rubber Industry Association, the yield of Chinese tires in 2008 was 350 million, with a YOY increase of 6%. Among these tires, the Radil output was 260 million, with a YOY increase of 13%. However, the profit of Chinese tire industry decreased by 50.9% compared over 2007. The outbreak of the global financial crisis really has a tremendous impact on the tire industry. Especially the contraction of auto markets in Europe and the United States has greatly influenced Chinese tire industry which has a high dependency on export. However, in the first half of 2009, most Chinese large tire enterprises had both production and marketing thrive. The working rates of some companies were near or even beyond an all-time high. Since the raw material prices fell sharply and the tire prices fell limitedly, the gross profit rate in the tire industry increased by 5% and 10% respectively, reaching a historic high. Accordingly, quite a few listed tire companies’ net profits increased greatly in the first half of 2009. Some of them even issued pre-increase announcements. Kweichow Tire Stocks Trading Co. announced that its semi-annual net profit in 2009 would increase by 100% to 150% YOY. Before, Qingdao Doublestar Tire Co., Ltd also estimated the sharp increase of its semi-annual net profit.

Tan Yukun, deputy sectary of China Rubber Industry Association Tire Branch said, “Driven by the car industry and the machinery industry, in the first half of 2009, Chinese tire industry quickly got rid of the negative influence of Q4 in 2008. Since Q2 in 2009, Chinese industry has been in the recovery period. In the first half of 2009, the capacity utilization of many enterprises reached 85% of the same period last year. Some enterprises even surpassed their historic high and ran full productions.”

According to the statistics, with both production and marketing thrive, the Q2 profit in the domestic tire industry rallied obviously. The situations of the tire industry in February and May were quite different. In February of 2009, the total profit of the domestic tire industry was 14.39 million RMB, with a YOY decrease of 98%. However, in May of 2009, the total profit was 3.8 billion RMB, with a YOY increase of 43%.  Although the statistical data has not been revealed, many tire executives expressed that the profit growth in Q2 must be far higher than that in Q1.

However, the export situation of Chinese tire industry is not positive. In the first half of 2009, the export of tires was unprecedentedly difficult. Statistics show that from January to April, the export volumes decline by 26% to 29% and the decline from May to June was 16%. On July 27th, Chinese Petroleum and Chemical Industry Association released the newest statistics showing that in the first half of 2009, the total export-import volume was 136.267 billion USD, with a decrease of 36.5% YOY. The export volume was 43.558 billion USD, with a decline of 32% YOY. Moreover, the international trade protectionism is still rising. Recently, UN, Japan, USA and other countries and areas are preparing technical trade barriers against China. Behind the rising of the export trade barrier, the weak demand in overseas market is seen. Therefore, the export situation in the second half of 2009 is not optimistic. It is really important and urgent for Chinese tire industry to weaken its dependency on export.

Aeolus Tire Co., Ltd is a very good example. Aeolus Tire Co., Ltd that was once shocked by overseas market now takes turn for the better. The person involved stated, “At present, the demand for most products of our enterprise exceeds the supply. Judging from the situation in the first half of 2009, the enterprise is obviously reviving. ” The major reason for the revival of the company is due to its change of strategies. Last year its export market was severely shocked by the financial crisis. This year, it has paid more attention to the maintenance market and has achieved good results.

According to Tan Yukun’s later words, in the 2nd half of 2009, Chinese tire industry will still grow steadily. In our government’s four-trillion investment plan, the proportion of the reconstruction of railways, public roads, water power and Wenchuan area is over 50%, which will absolutely stimulate the demands for off-the-road tires. Besides, the infrastructure construction programs like railroads will further stimulate needs for truck tires and car tires. Thus there will be more opportunities in Chinese tire industry.

 

Source: China Research and Intelligence

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