Tire Review’s China Tire Watch
[Editor’s Note: Oliver Haiqing Hua, a tire business analyst, has joined the Tire
Review team to give periodic insider reports on developments within the
Chinese tire industry.]
Radial Truck Tire Capacity Expansions
According to the recent Chinese "tire industry access conditions" draft issued
by the Ministry of Industry and Information Technology (MIIT) of China, future
truck radial tire new plant or expansion projects should have production
capacity of more than 1.2 million tires annually.
By comparison, future radial light truck and car tire new plant or expansion
projects should reach an annual output of more than six million tires.
Tire demand volume is very large, and with very high safety requirements.
Therefore, this draft has put forward a comprehensive planning and
requirements for the industry as a whole. So far, there are a large number of
tire companies in the market. However, there are very few listing corporations
especially in the “A” market; there are only six or seven companies in the
Shanghai and Shenzhen A markets that are purely in the tire industry. In the
Shanghai A market, there are Double Coin, Aeolus Tyre and Sailun Tyre. In
the Shenzhen A market, there are Qingdao Double Star, Guizhou Tyre and
Giti Tyre.
The draft also encourages the manufacturers to develop the energy-saving,
environmental friendly, and safe green tires. Green radial tires are those with
new materials and designs that have properties such as low rolling resistance,
low fuel consumption, and less exhaust emission. The analysis also believes
that the green tire is the future direction of tire industry development.
However, there are still very few enterprises that really put green tires into the
production.
It is understood in China that the development of green tires is the general
trend of the world tire industry. It is also a key part in becoming a world rubber
industry power. At present, many domestic tire enterprises have entered or
announced that they would enter the green tire field. However, without a
quantitative standard the flood of the concepts will not be conducive to the
healthy development of the industry. Therefore, to issue green tire standard is
the urgent requirement of tire industry.
The China Rubber Industry Association (CRIA) started research of green tire
industry development in 2012. In the shortest possible period of time possible,
CRIA completed the "standard" formulation. CRIA is calling on all the tire and
raw materials member enterprises to offer proposals, comments or
suggestions in the reference of the trial implementation. CRIA will organize
the revision accordingly.
Nexen Tire Targets Global Top 10 Rank by 2018
Recently, the executives of Nexen Tire Corp. talked about the company’s
global strategy during an interview meeting in Shanghai with some business
reporters.
From the latest global list of top tire manufacturers, Nexen is shown as 23 on
the list. The company said it is not satisfied with this result, and is striving to
expand their business throughout the world.
Nexen Tire was founded in 1942, and claims to be South Korea's first
enterprises involving in the production of car tires. Currently, it focuses on the
production of car and light truck/SUV tires.
Nexen claims an annual growth rate of more than 20% every year, and is
targeting to become one of the global top 10 tire manufacturers.
Nexen has three plants in South Korea and China, and established six
subsidiaries and 11 overseas branches in the U.S., China, and Europe.
Through its regional companies and branches, Nexen’s sales business covers
more than 130 countries and regions.
The tire company has a factory in Qingdao, China, and established sales
office in Shanghai. In both the replacement and OE markets, Nexen has set
the European, U.S. and China markets as the key areas for expansion. Sales
volume and turnover globally has increased year by year; unit volumes have
grown from 22.86 million tires in 2010 to 33.55 million tires in 2013. Sales
turnover has increased from $760 million in 2008 to $1.67 billion in 2013.
It is expected in 2014, Nexen global sales will exceed 36 million tires.
Currently, Nexen’s total global production capacity has reached 35 million
tires, of which the Qingdao factory has a capacity of 10 million tires;
Liangshan, South Korea, factory has a capacity of 19 million, and new
Changnyeong-gun, South Korea, factory 6 million. With the planned
Changnyeong capacity expansion in 2015, Nexen total global production
capacity will reach 43 million tires.
China Tiremakers See Greater Role in U.S. Market
Not long ago, the Double Coin general manager Zhang Wanyou visited the
U.S. According to Zhang, he has met more Chinese tire enterprises in the
U.S. than he met in China. He feels that all Chinese tire enterprises are trying
all means necessary to exploit the international market. During the China
Rubber Industry Association (CRIA) Tyre Branch general assembly, he shared
his experience with the participants.
It is understood that about half of the tires produce in China are for export.
However, Chinese tire enterprises are unwilling to lag behind; they all have
accelerated the pace of globalization and strengthened their development of
an international market.
Zhang mentioned that other domestic tire enterprises also have the same
feeling. A manger from Shandong Tyre Co. told reporters that in recent years,
at the famous annual SEMA Show tire exhibition they have attended, they
always seen more foreign faces than the year before. In recent years, there
are more and more Chinese at the SEMA Show. He said that it is not
exaggerating that the trade show has almost become a Chinese tire
professional exhibition.
Data shows that in 2012, the Chinese tire export growth rate reached 9.6%
year-on-year. By 2013, the tire export volume growth rate reached 13.3%.
Because of excessive domestic low-end production capacity, market
competition has become intensified so that the domestic tire enterprises have
chosen to increase their export efforts.
Vice president and secretary general of CAAM Xu Wenying said, in 2013, the
U.S. had imported a total volume of 43.57 million passenger car tires from
China, accounting for about 32% of the U.S.’s total passenger car tire imports.
"This shows that for every three imported passenger tires in America, there is
one from the China." At the same time, the Chinese tire export volume to the
U.S. has also grown by 24%.
Although this has brought about the prosperity and development of Chinese
tire export market, it is growing too fast and easily influenced a related trade
policy enacted in 2009. That trade “safeguard" policy was one of the important
trade barriers the U.S. government took on imported Chinese tires, and
another tariff may be coming.
It worth mentioning that Chinese industrial experts have called upon the tire
enterprises to not ignore technical innovation in order to fulfill their export
orders. They believe Chinese tire enterprises need to continue improving tire
technology and their R&D efforts to improve the technological content of their
products and, therefore, improve their value in the current market. This can
also, they suggested, reduce the risk of destination countries creating trade
barriers.
With New Plant, Linglong Tyre Building an Internationalized Tire
Enterprise
Recently, Linglong Tyre International (Thailand) Co.’s first-phase tire plant
project started full production. The first phase of this project has an annual
production capacity of two million units of high performance tires.
Nearly 500 partners – distributors and retailers – from more than 180
countries and regions around the world visited the factory in Thailand tp
witness the tire production launch ceremony. During the ceremony, the
partners heard that Linglong Tyre’s internationalization strategy has stepped
into the fast lane, and started a new era as a world-class tire enterprise.
Thailand is Linglong Tyre's first overseas production base, is the starting point
in the company’s strategy to build three domestic manufacturing facilities and
three overseas manufacturing bases. The Linglong Tyre Thailand factory
project has a total investment of nearly $700 million, with an overall annual
scale of 13.2 million tires.
The project features high-level production equipment. The entire production
line is fully equipped with a first-class calendar, cutting machine, one shot
forming machine, hydraulic machine and other high-end production
equipment. The result is high precision, good stability, and high degree of
automation.
Reportedly, products from the new Thailand plant are already in short supply.
Plans for the second phase of the project have been submitted to China
National Development and Reform Commission for the required recording.
The company will take three to four years to complete the construction and
put it into production.
China Tire Industry Analysis for April and May
At the time, there was stable work force during the winter in China so the
labor cost element on tires will be reduced. In the winter of 2012, many of the
tire production enterprises were operating at full productive capacity. This
caused the tire inventory surged for each of the tire manufacturers. In some
individual tire factories, the inventory once exceeded over 400,000 units at a
value of more than $165 million.
Despite previous experiences, each tire production enterprise made wrong
predictions on the tire market in 2013. One year later, the majority of domestic
projects in China remain in the planning stage, not many of them have been
implemented so the market remains in the doldrums. As a result, many of the
tire manufacturers are facing economic crisis last year.
The essence of the crisis is the imbalance of tire supply and demand,
overcapacity and lack of consumption. Tires have been produced that cannot
be sold quickly at a desired price, causing cash flow issues that have led to
business failures and production decline. In order to withdraw the circulation
funds and avoid a collapse, tire enterprises have started a brutal price war.
"Entangling" and "helpless" are again the two words that best described the
Chinese tire market in March 2014. The continuous downward trend has
resulted in much depression to the market atmosphere. Most tire sellers had a
"vulnerable" feeling about the tire business they depend on, and wondered if
April would turn the page.
The following is the summarization of the risk factors that affect the tire market
in April and May 2014 in China:
• In March, the natural rubber price continues to jigger around like the roller
coaster. Take Yunnan state-owned latex as an example, the highest point of
March was 15,200 yuan (US$2,533.33)/ton, while the lowest was 14,050 yuan
(US$2,341.67)/ton, and the average price was calculated as 14,658 yuan
(US$2,443.00)/ton, compared with the average price of 15,416 yuan
(US$2,402.67)/ton one month prior, the price has dropped down by a rate of
5%.
• In view of the then current rubber price market, the majority of tire
manufacturers did not have plans to increase the inventory of raw materials.
The rubber price could continue fluctuating in the short term, and the tire
manufacturers will still be purchasing based on real-time demand. If rubber
prices continue to be running at a weak vulnerable level, the tire prices will
hardly keep stable.
"Watch the rubber price, and gamble on the tire market" has become the
unwritten rule as it pertains to current tire prices.
The tire market in January and February was as tepid as a cup of bad tasting
coffee, and it would be easy to explain by the Chinese New Year season
production slow down.
But in March the tire market continued downward and there was no resistant
measures are taken. The manufacturers no longer give customers any buffer
time; dealers have to purchase "according to the agreement plan.”
To complete their quarterly requirements, dealers purchased more tires in
March than the total tires they purchased during the previous two months. No
wonder the market feedback was so bad – but where were the tires in the
manufacturers’ inventories?
The answer was simple: manufacturers moved like a raging fire to get those
tires from their warehouse to avoid their own risk. Before the true digestion of
the "transferred tires” in the market, its deterrent force cannot be ignored.
"The inventory has been depreciated that caused the money lost. It is not the
time for high stakes." This has become the current attitude on the market
among dealers. After the Chinese New Year holidays, most of the businesses
were working through their inventory with some replenishment of best-selling
models. Due to the lack of confidence, the regular large quantities of tire
purchasing were not carried out.
The April and May factors are still the mainstream, and short-term tire price
will continue to drop down. Unless the infrastructure has been driven
significantly to bring in the rigid demand, all other factors will not do much to
push up the market.
Linglong Tyre Performed Performance Testing in the U.S.
On March 15-16, the Linglong Tyre research staff performed performance
testing on Linglong Tyre Cross Wind M/T tire in the U.S. The testing included
tire subjective noise, handling, dry/wetland control and braking.
The manufacturer said that test results showed that in the aspects of noise
control, comfort, anti-skidding performance and regular control, the Linglong
Cross Wind M/T was superior to the other brand tires participating in the tire
test.
This is the first time Linglong Tyre performed tire testing in North America.
Sailun Tyre Raises $600 Million for Tire Production Project
On April 9, Sailun Tyre announced that it intends to issue the non-public
offering at a share price of not less than 12.17 yuan (US$2.03) per share for
not more than 98.6 million shares. The offering would raise approximately 1.2
million yuan (US$600 million), some of which is to be applied to increase
production to an annual output of 15 million high performance steel radial tires
by the company’s wholly owned subsidiary – Jinyu Industries.
Once the project has achieved up to normal production, the annual income
revenue will reach 3.701 billion yuan (US$616.68 million), with the net profit of
up to 248 million yuan (US$41.67 million). The project investment profit rate is
15.02%.
After the increase of 15 million tires, Sailun Tyre’s tire production capacity will
reach 44.8 million tires (including Sailun Tyre Vietnam’s 7.8 million tires
production capacity) – all within three years time. Sailun Tyre has performed a
classic play of using the capital market and quickly become a bigger and
stronger tire manufacturing company.
In August 2012, Sailun Tyre had only been listed a little bit more than a year; it
spent 170 million yuan (US$28.33 million) to buy 49% of Shandong Jinyu Tire.
At the same time, it acquired 100% ownership of Shenyang Peace Tyre at a
price of 120 million yuan (US$20 million).
In June 2013, Sailun Tyre acquired the remaining 51% stake in Shandong
Jinyu Tyre with a non-public offering fund raising of a total of 220 million yuan
(US$36.67 million).
Sailun Tyre net profit has been grown from 100 million yuan (US$16.67
million) in 2011 to 160 million yuan (US$26.67 million) in 2012 and further up
to 244 million yuan (US$46.67 million) in 2013.
China Builds Rolling Resistance Comparison Test Lab
After a recent working meeting in Beijing, during which seven labs in the
country were considered, China National Tyre Quality Supervision and
Inspection Center (CNTQSIC) was selected as the only third party testing
institution to be awarded the certificate for the car, light truck, and truck tires
rolling resistance comparison testing.
The group found that tire rolling resistance test machines give very different
test results base on each individual test machine’s own characteristics.
Therefore, those results cannot provide the base data for tire rolling
resistance evaluation. To resolve this problem, the European Union adopted a
method of establishing the basic standard, averaging the value from rolling
resistance tests conducted at nine labs to serve as the base standard value.
China Metrology Association borrowed the EU method, establishing a tire
rolling resistance reference laboratory network, and issued the certificates and
plaques to the first batch of laboratories. The CNTQSIC was shown to have
the best tire rolling resistance test method and data evaluation system. It can
provide test data in accordance with the requirements of EU value limit and
meet labeling regulations and legislation. It also can provide test results in
accordance with the Chinese national standard method.
Anhui HeDing Tires Project Put into Operation in May
Anhui HeDing Tires Technology Co. Ltd.’s new plant project is located in
Anhui Huaiyuan Economic Development Zone with a total investment of 2
billion Yuan (US$334 million). Anhui HeDing Tyres is mainly engaged in the
manufacturing and sales of the high performance, environment and energy
saving radial tires. The project covers an area of 666,667 square meters with
a total under-roof area of 210,000 square meters.
The project will be constructed in two phases. The first phase of 170,000
square meters space will be put into operation in May 2014.
Anhui HeDing Tyres was founded in April 2011, and focuses on new
technology and new product development. It has enhanced brand innovation
ability and strives to be close to the market and maximize services to satisfy
customer demand.
HeDing Tyres’ products have been positioned for the high-end market for the
domestic and foreign enterprises. In the Chinese domestic market, Anhui
HeDing Tyres distributes its products mainly through a sales agent network.
Guangrao: A Place Where Tires Meet
In Guangrao, China, there are over 42 above-scale tire enterprises and nearly
100 smaller tire enterprises. The radial tire production capacity in Guangrao
County has reached 150 million tires, accounting for one-fourth of the national
total.
The tire industry in Guangrao has achieved exports amounted to US$2.94
billion in 2013 alone. Even though there is no one as famous as Linglong
Tyres, Double Star Tyres or Aeolus Tyres and other well-known domestic
brands, or any international giant such as Michelin and Bridgestone, what
makes Guangrao stand out in the tire industry in China as well as in the
world?
Founded in 2009, Shandong Haoyu may better understand the role that
quality has played in the development of the enterprises. Company chairman
Zhu Yuncheng has been engaged in rubber industry for more than 30 years.
He has experienced the rise of Guangrao tire industry, and witnessed the
development of Guangrao tire. He said that production overcapacity and
fierce price competition are the pains in the neck that the Guangrao tire
industry can live without. Only a quality tire can make the enterprises stronger
and bigger, Zhu concluded from his experience.
Shandong Haoyu has given identity to each tire it produces so that each tire
can be traced back and the company can control the quality in detail. Zhu said
there is a unique code for each tire at each link of the production processes.
Any quality defect can be traced back to the link and the person in charge so
that each of the production staff will maintain a high quality consciousness.
At the same time, Shandong Haoyu has adopted a tire process technology
that has been used in the international production. This method can avoid the
unavoidable defects due to human interference during the building and curing
processes, which cause production instability and quality uncontrollability.
In the production final test stage of production, all Shandong Haoyu tire
products pass through X-ray machines. Destructive testing also needs to be
performed on certain tires from each batch before the product put into the
market. A set of highly standardized requirements guard each of the quality
procedures.
Guangrao county government also requires the Guangrao tire to consider
quality as a business card. China General Administration of Quality
Supervision, Inspection and Quarantine (AQSIQ) set up the "national rubber
tire product and material quality supervision and inspection center" in
Guangrao.
Guangrao County government has provided the land and 45 million yuan to
build a 20,000-square-meter testing laboratory.
Coungty quality inspection bureau chief Yang Zhenguo revealed that
Guangrao County will work with AQSIQ to invest 1 billion yuan (US$166.67
million) in the construction of a tire test facility that covers one million square
meters.
Yang said that the tire testing facility will test all the tire products in order to
improve product quality and technology and better adapt to the market needs.
China’s tire industry has no national test facility, so tires can only be tested by
sending them to foreign countries. The construction of this tire testing facility
in Guangrao County will solve this problem.
Yang stressed that this fundamental change in traditional business can lead
the progress of China national tire industry and enhance the international
competiveness of the tire enterprises.