China Tire Report – November 2017

This is the latest summary of our analysis of China's tire industry. We publish a weekly report on the tire industry in China. It is the only source of information in the English language for those who want to keep up-to-date with commercial, legislative, policy and recycling developments in the tire industry in China.

Since this was distributed on 1 November, there have been some significant news stories affecting the China tire industry. Our subscribers already know about them and are making their decisions based on this intelligence, but readers of this column will have to wait another month before finding out.

Subscribers to our monthly newsletter also saw this column a couple of weeks ago.

China’s tire industry in October 

October started slowly, but things heated up toward the end of the month. 

The main news from China in October has been the Party Congress that re-elected Xi JinPing as President for his second term, with no obvious successor. The Congress happens every five years and in the recent past, the President has served two terms. A successor is normally appointed at the start of the second term. This is President Xi’s second term, and the news coming out of China suggests that he expects now to continue for at least a third term, and quite possibly more. 

We think this means China will be more expansionist in the coming decade, with more support for the Belt and Road and the Made in China 2025 policies that especially affect the tire industry. 

We also think that an invigorated Chinese administration will want to be seen more as a global leader in the face of political chaos in the United States and instability in Europe. In particular, we think that China’s environmental policies will be further strengthened. 

Environmental policies 

We think that the experience of the carbon black sector is a good model for the future of the tire industry. 

In this month’s Global Tire Intelligence report, we have a detailed analysis of how the latest environmental inspections and policies have affected China’s carbon black industry. It brings deep insights into how the process works and the strengths – and especially the weaknesses of the process. 

In broad terms, some of the inspectors and advisors are less well-informed than their international colleagues and this is leading to difficulties in the enforcement of the rules. Furthermore, some local officials under-estimated the strength of the government’s intentions. When national-level inspectors discovered significant pollution, they applied pressure to local mayors to get results quickly. The resulting blanket bans on production affected all players, even companies that were fully compliant. 

Heavy truck sales jumped in September 

Sales of heavy trucks nearly doubled in September 2017 compared to a year earlier. This was the pattern last year that led to a steep increase in prices and general chaos in the period from November to March. A year ago, truck production boomed for about six consecutive months. Therefore, – in our opinion – the volume increase in the single month of September is not sufficient reason to trigger strong action. 

However, we note that environmental restrictions are continuing, and the re-election of Xi Jinping as president means the environmental inspections will only get more intense if the smogs of last year are repeated. 

We will continue to keep an eye on heavy truck sales. If the mini-boom continues into October, then the warning bells will really start to sound. A continuation at this rate into November and December will mean the situation could get as bad as a year ago. 

Price rises 

Wholesale prices of truck and car tires in China rose strongly in August, based on fears of more raw material price increases and the costs of environmental improvements. Data from SCI99 shows that the price trend has now levelled off – as we suggested it would – and prices stabilised during October, despite a series of price-increase announcements in September and October,. 

The future direction of price movements is unclear. A simple analysis based on raw material prices would suggest that prices are likely to fall, as prices of both natural and synthetic rubber are on the way down and competition can return to the market. 

Furthermore, the temporary closure of some construction projects over the winter period due to environmental restrictions will reduce demand for heavy tires. 

However, the increase in production of heavy trucks, combined with factory shut-downs due to environmental infringements, combined with production starting to gear up ahead of the Winter season and shortages of some key ingredients could easily cut the availability of some tires, which would tend to remove the need for aggressive price competition. 

As the remaing months progress, we hope to get a better understanding of future price directions. 

Winter tire sales pick up 

Sales of Winter tires in China are picking up and all the main players are focussing on the Provinces of Heilongjiang, Jilin, Xinjiang, eastern Inner Mongolia, and Liaoning as they all show strong growth in the demand for winter tires due to cold temperatures, despite comparatively little precipitation (snow, sleet and hail). 

Local companies including Triangle as well as the international players have been steadily promoting the concept of Winter tires to local dealers and to the population at large, many of whom are new to owning their own vehicles and do not understand the contriution tires make to safety in cold weather. 

Brand influence 

China’s government wants to increase the international strength of its domestic brands. As with the environmental policies, any company that wishes to keep on the right side of government will take note of this. 

We are seeing some leading tire makers rationalise their brand portfolios. Prinx Chengshan, for example is focussing on just four brands: Chengshan (成山), Austone (澳通), Fortune (富神), Prinx (浦林). 

This has not yet spread to all tire makers – we understand that Zhongce still sells truck tires in over 20 different brands. 

We are expecting this brand concentration to continue. This might mean an end to the days where a tire importer might agree to buy a certain number of containers each month, but the supplier might deliver different brands each time – even though the tires have the same internal construction and compound performance. 

Sustainable Natural Rubber 

At this year’s meeting of the Association of Natural Rubber Producing Countries (ANRPC) in Ho Chi Minh City, Vietnam, The China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters (CCCMC) launched its new rubber industry guidelines “Guidance for Sustainable Natural Rubber” – the most progressive yet in addressing social and environmental risks for rubber companies. 

The 60-page document applies to businesses which invest in, plant or process natural rubber. It can also be used by upstream and downstream enterprises, such as tire makers. 

Up to now, we have not seen any Chinese tire maker declare policies with respect to sourcing sustainable natural rubber. We hope that these guidelines might lead some of them to re-consider their positions. 

This contrasts with some of the big brands that have said they will seek to ensure they source natural rubber used in tres only from sustainable sources that have not contributed to de-forestation in recent yearsand which preserve the rights of local people. 

– David Shaw 

This article was printed in our monthly newsletter , published at the end of October, and summarises news and developments from our weekly report on the tire industry in China. For the latest information on the tire industry in China and the rest of the world, see our website at www.tireindustryresearch.com