Labor, rather than raw material, costs are the true driver in the relocation of tire production from the developed world into emerging markets, according to a market research firm studying rubber and tire industry trends.
The migration of tire manufacturing has dominated the trends within the global tire market in recent years. While the bulk of tire demand remains in developed countries, production capacity has shifted, said Bill Hyde, director of C4 olefins and elastomers for Chemical Market Associates Inc. in Houston.
Hyde talked about trends in tire production and demand during a presentation at ITEC 2006, held Sept. 12-14 in Akron.
The global tire trade has become a much more significant factor in the market, Hyde said, evidenced by some interesting data. Between 2000 and 2005, tire imports to North America increased by 92 percent, while over the same time frame tires shipped into Western Europe rose more than 50 percent, he said.
North America's share of global tire production capacity, at 25 percent in 1997, fell to about 21 percent in 2005, Hyde said, while in Western Europe the figure declined to 16 from 18 percent.
Not surprisingly, he said, tire production capacity in China rose substantially from 1997 to 2005, with its global share climbing to 17 from 10 percent. Tire exports from China during the first half of this decade climbed nearly 150 percent, and exports from Central Europe more than doubled, Hyde said.
Exports from other Asian markets, such as Japan, South Korea, Taiwan and the overall Southeast Asia region, increased from 2000 to 2005 as well.
Hyde believes the main impetus in the shift is direct labor costs. Average U.S. wages are much higher than those in the parts of the world where tire production is on the rise, he said.
As an example, he said, average wages in this country are more than those in Poland and China by factors of five and 17, respectively.
Raw material costs have risen in the past few years as well, with the average cost of commodity rubber in a typical passenger tire nearly doubling in the past four years, Hyde said. But by looking at relative price movements among the three major tire producing regions-North America, Western Europe and Northeast Asia-the differentials are relatively small, at less than 20 cents per tire long term.
An analysis of recent history in tire commodity rubber costs-primarily from polybutadiene and styrene butadiene rubbers-showed U.S. tire makers had a rubber cost disadvantage between 1997 and 2002. However, from 2003 into next year, U.S. producers actually have a slight advantage based on CMAI assessments and projections.
The U.S.'s disadvantage relative to Western Europe will return in 2008, Hyde said, and remain into 2010. But tire producers in Northeast Asia-including China-actually will be at a disadvantage relative to their global competition in the near future, he predicted.