Chinese tire makers brace for the new normal

BEIJING—China's tire production and sales volume recorded the first drop in more than two decades in 2018, against the backdrop of the first global downturn for the automotive industry in the past ten years.

The first two months of 2019 saw an even sharper year-on-year decline in the China market, Shen Jinrong, chairman and general manager of Zhongce Rubber, said during her speech at the China Rubber Conference held in Guangzhou in March.

According to data from the China Rubber Industry Association, the country's tire production fell by 0.8 percent year-on-year to 648 million units in 2018. Radial tire production fell by 0.7 percent to 609 million.

"You cannot overstate the graveness of the drop in China's domestic consumption," Shen said.

In 2018, China's tire makers had $479 million in profit on $25 billion revenue.

"What you are seeing as the sector's profit also covers the manufacturers' non-main business, without which there's basically no profit," he said.

The U.S. and Europen Union anti-dumping tariffs also are casting heavy shadows as more than 40 percent of China's tires are exported with the two markets accounting for a significant share, he added.

According to CRIA, China exported 5.4 million metric tons of tires last year. Forty percent of the passenger car tires, which totaled 2 million tons, were sold in the U.S. and EU. Of the 3.4 million tons of truck and bus tires exported, 25 percent were sold in those markets.

Faced with such headwinds, CRIA estimates that China's truck and bus tire production in 2019 will fall by 13 percent to 116 million units, when compare to 2018.

Overall production, including bias tires, is expected to decline by 1.8 percent to 636 million.

Trade conflicts have become the biggest uncertainty in global economic growth, according to Li Ruoyu, director of the Financial Department at the State Information Center's Economic forecasting division at the conference.

According to Li, the Chinese authorities have taken into full account the international and domestic downturn. It set the 2019 GDP growth target at 6-6.5 percent, compared with the 6.5 percent target for 2018. It also is rolling out a series of policies such as tax cuts to counter the trend.

Tire and other rubber products' export rebates were raised from 9 percent to 13 percent in November. Value-added tax rate also were lowered by 3 percent to 13 percent in April. Zhongce's Shen Jinrong, however, contends that such measures wouldn't be all that helpful.

Shen looks to the rural markets for passenger car tire opportunities as the average vehicle price is dropping. He also notes that global demand for high-end truck and bus tires is rapidly expanding and Chinese manufacturers are neck-and-neck with international giants in the 400-kilometre tire-life segment.

There sure are areas that Chinese tire makers need to improve. All Chinese tire plants, for example, still have storage and transfer facilities for green tires, likely due to restraints by the current curing methods, CRIA's Xu Wenying noted at the conference.

"Such processes sure can be streamlined," she said.