Tire tycoons gather in Qingdao paying attention to where the market is heading this year

04 June 2021 | Source from China Rubber Web

Yang Honghui

On April 20, the 2021 China Rubber Industry Association Tire Branch Council (Expanded) Meeting was held in Qingdao.

The meeting reviewed the 2020 work summary and 2021 work plan of the Tire Branch. At the same time, focusing on the characteristics of the tire export, supporting and replacement markets in the post-epidemic era, raw material price fluctuations, how the upstream and downstream industries can coexist and overcome difficulties, as well as the impact of carbon peaks and carbon emission targets on the tire industry, urgently needed policy support, and so on such industry hotspots, key points and difficult issues were discussed and exchanged in depth.

Xu Wenying, Vice President and Secretary-General of CRIA, Zheng Wenrong, Full-time Vice President of China Natural Rubber Association, attended the meeting. Shi Yifeng, Secretary-General of Tire Branch of CRIA, and Shen Jinrong, Chairman of Tire Branch and Chairman of Zhongce Rubber Group Co., Ltd., presided over two stages of meetings respectively.

Chai Yongsen, Chairman of Double Star Group, Wang Jianye, Rotating President of Sailun Group, Wang Feng, Chairman of Aeolus, Zhang Wanyou, Chairman of Double Coin Tire, Wang Zhaohua, Senior Vice President of Michelin China, Cao Xiandong, General Manager of Wanli Tire, and Che Baozhen, President of Prinx Chengshan , Wei Nan, Deputy General Manager of Triangle Tire, Wang Kun, Executive Vice President of Guizhou Tire, Lin Wenlong, General Manager of Sentury Tire, and Li Qingwen, Chairman of Chaoyang Longmarch, and more than 80 representatives of major domestic and foreign tire companies and upstream and downstream companies attended the meeting.

Three major tire markets in 2020 stabilized and improved

Shen Jinrong summarized the operation of the tire industry in 2020. He said that 2020 is an extremely extraordinary year. In the face of sudden epidemics and various crises, the tire industry and companies insist on "two hands" in advancing structural optimization, green transformation, technological innovation, and improving quality and efficiency. A gratifying result has been achieved.

In 2020, China’s total output of tires was 634 million, a year-on-year decrease of 2.8%. Among them, the total output of radial tires was 596 million, a decrease of 3.3%, and the meridian rate was 94%; the output of bias tires was 38 million, an increase of 5.6%. Among radial tires, the output of all-steel tires reached a record high of 138 million, an increase of 4.6%; the output of semi-steel tires was 458 million, a decrease of 5.4%.

The three major markets of tire matching, replacement and export have generally stabilized and improved.

In the supporting market, China’s commercial vehicle production got to a record high in 2020, reaching 5.231 million units, an increase of 20%, helping truck and bus tires to increase by about 26%; although passenger vehicle production has shown a downward trend for three consecutive years, the situation is gradually becoming good, and the development of new energy vehicles is vigorous.

The replacement market has gone from weak to higher and stable to better. Although the epidemic had a great impact on the market in the first half of the year, it continued to rise in the second half of the year. Generally speaking, the situation of the all-steel tire market is better than that of the semi-steel tires.

The export market experienced a slight decline in twists and turns. The export situation in the first quarter was still good; the orders in the second quarter fell sharply by 60% to 70%; after the third quarter, it began to improve, but the exchange rate changed at the end of the year, the shortage of containers and the soaring freight rates put a lot of pressure on the export of tires. In the whole year, the export of all steel tires decreased slightly by 2.1%, while that of semi steel tires decreased by 6.8%, which was better than expected.

Multiple factors affected the overall profit growth of the industry last year

In 2020, despite the severe impact of the epidemic, the profitability of the tire industry is still relatively satisfactory. In particular, the profits of some leading companies have shown double-digit growth.

According to Shen Jinrong’s analysis, four reasons have contributed to the improvement of the industry’s profitability: First, the domestic epidemic control has effectively controlled production and the recovery of production has been relatively good. The lagging recovery of foreign production capacity has left room for the tire export market, and the capacity utilization rate of the domestic industry as a whole (especially the dominant enterprises) was better released. Second, the prices of bulk raw materials were stable and low for most of the year. Third, the advantages of the overseas layout of top excellent enterprises have been fully demonstrated, and the output of all- steel tires in the overseas factories of Zhongce, Linglong, Sailun, and Double Coin has increased by 25%, and the total output of semi-steel tires of Zhongce, Linglong, Sailun and Sentury has increased by 2.4%. The overseas plants of Prinx Chengshan and Jiangsu General Motors have also been put into production and realized large-scale production. Fourth, at the end of the year, with the fluctuation of raw material prices, tire companies made corresponding adjustments in a timely manner and created a certain contribution to profitability.

Increasing uncertainty in the tire market in 2021

Since the beginning of this year, the price of raw materials has risen sharply, which has brought severe challenges to the production organization, capital flow and final profitability of tire companies. In addition, there are also many unstable and uncertain factors in the export market, which are likely to cause the trend of "high in the front and low in the back". During the discussion and exchange, the general manager of tire enterprises generally took a cautious attitude towards the trend of tire market in 2021.

Shen Jinrong said that since the fourth quarter of last year, the export momentum of tire companies was good, and the export growth in the first quarter of this year was also large. It is estimated that the growth in the second quarter will be faster, but he is cautious about how long this trend can last. First, the epidemic last year affected foreign production and consumption, leaving market space for China’s tire exports. However, at present, foreign production is recovering and consumption is rebounding, so it is uncertain whether export growth can be maintained; Second, the price rise of raw materials in the previous stage has driven the demand for orders. Once the price tends to be normal, the market will develop in a flat direction.

At the same time, some national policies on light trucks and heavy trucks are still unclear, such as how to implement the national VI standard for heavy trucks, which makes the automotive market uncertain. Shen Jinrong believes that the supporting market may become the most important factor affecting the tire market in the last two to three months, and commercial vehicle supporting may be experiencing an inflection point. But at the same time, he believes that the market demand for replacement tires is stable and will not change much.

There are also tire company bosses who believe that this year is the most difficult year for the tire industry. On the one hand, the price of matching tires is low, it is difficult to collect payments, and the funds are occupied; on the other hand, the price of tires in the previous period has been "inflated", the price of the terminal market has not kept up with the trend, and there was a "false prosperity" in the market.

In addition, in response to the country’s commitment to carbon peak, carbon neutral and green development goals, tire company bosses generally believe that the country must formulate corresponding policies to achieve the expected goals, which is also a great challenge to the tire industry. To this end, the industry should take precautions and formulate corresponding methods and measures to achieve green and circular development.

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