It is difficult to be optimistic about the triple weight of Chinese tires in the second half

Chinese tires passed through 2013 in “optimism” and entered 2014. The overall performance in the first quarter was fair. However, the market situation changed rapidly after May and became more and more severe. In the second half, the author believes that under multiple pressures, China's tire industry may no longer be "optimistic".

The first heavy pressure stems from the low price of rubber. The low rubber price is good for corporate profits, but due to the long-term downtrend in the price of rubber, and the possibility of reversal is not seen, the price of tires will be severely hit. In the first half of this year, the overall price reduction of tires in China reached 20%, which is much higher than the price drop of rubber in the same period and continues to show a downward trend. According to statistics, in May, the overall price index of Chinese car tire dealers was 80.83, a decrease of 3.44% from the previous month; the comprehensive price index of Chinese car and passenger car tire dealers was 71.46, down 2.6% from the previous month.

Recently, in order to complete the half-year sales target, some multinational tire manufacturing giants have also taken the initiative to increase preferential prices in advance. These price cuts or promotions will cause China's tire prices to further decline. It is expected that in the second half of this year, the gross profit rate of tire companies will be greatly reduced.

The second heavy pressure stems from excess capacity and high inventory of tires. Since last year, the “optimistic” atmosphere in the tire market has stimulated a number of blind investments and the structural surplus of tires has become more serious. According to statistics from the Rubber Machinery Professional Committee of China National Chemical Equipment Association, in 2013 China's new steel tire production capacity was 15 million sets and semi-steel tire production capacity was 100 million sets. From the current tire equipment procurement estimates, in 2014 will increase the full steel tire production capacity of 15 million sets and 150 million sets of semi-steel tires. Overcapacity results in the operating rate of most small and medium-sized tire companies being below 70%.

As natural rubber is low, tire manufacturers generally increased output at the end of last year and early this year, raising the inventory rate. Tire enterprise stocks are now up to one and a half months of production, which is about 50% higher than the normal value. Enterprises are counting on sales growth in the second half of the year to digest stocks, but this is unlikely from the current transportation index.

Excessive production capacity and high inventory will adversely affect the tire prices. Even if there is a certain increase in tire sales, sales will not turn positive. Tire investment will usher in a turning point.

The third pressure stems from the United States' double counter investigation. On June 3, the United States Steel Workers Federation (USA) filed an application with the US International Trade Commission requesting the initiation of anti-dumping and countervailing investigations on passenger car and light truck tire products from China. Based on experience, the double counter investigation application is likely to be passed. It is expected that in October this year, the U.S. government will have the possibility of restarting special ad valorem tariffs on China's tires, and the rate of increase will be 25%-40%. China's passenger car and light truck tires have a very high dependence on the U.S. market, accounting for more than 50% of China's total tire exports. If the United States implements dual countermeasures, it will have a huge impact on China's tire market.

The author believes that in the second half of the tire industry should resolve the pressure from three aspects: First, the government should take measures to stabilize the rubber prices, such as increasing natural rubber storage, establish a commercial storage mechanism, establish a natural rubber stabilization fund; Second, should be based on the "tire industry "Entry conditions" for product upgrades, green production, inhibiting the structural excess of tires; Third, companies hold a team to respond to the double-op, fight for the US government to not file or reduce the tax rate, while vigorously developing emerging markets.

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