Rising raw materials engulf most profits
Affected by the skyrocketing prices of major raw materials, profitability inflection points in the Chinese tire industry have already occurred, and many companies have fallen into a state of marginal profit or on the verge of loss. Among them, the production of trucks with large amounts of rubber and construction machinery tires has been greatly affected.
The reporter learned on January 27th that in order to cope with rising costs, tire companies have brewed the second price increase before the holiday. However, industry sources reminded that due to the fierce competition in the tire industry, price increases are not enough to offset the pressure of rising costs.
Raw materials soared nearly 40% in 4 months
While China's auto companies have been making strides, the domestic tire industry has fallen into an operating dilemma ahead of schedule.
According to industry sources, “In January this year, the tire industry will continue its decline in profits. According to the latest statistics, in the fourth quarter of 2009, the profits of domestic tire companies fell sharply, and some companies’ profit before tax fell more than 20% month-on-month.†Tire and construction machinery tire manufacturers have become one of the biggest victims.
Lu Yukun, deputy secretary-general of the China Rubber Industry Association’s tire division, told the reporter yesterday. “The decrease in profit of the tire industry is mainly caused by two factors. First, the soaring raw material prices have caused the production cost of enterprises to soar. Second, companies cannot fully digest prices. Cost pressure."
A number of tire company workers admitted that the cost increase has swallowed most of the profits or even all profits. According to a number of tire industry listed in the first three quarters of 2009, the tire industry profits are mostly between 10% and 20%. Among them, the profit margin of semi-steel radial tires is the lowest, which is about 9%; the profit margins of bias tires and all-steel radial tires are high, exceeding 20%. But now it is not a good idea.
Cao Kechang, president of Cooper Tire Asia Pacific, points out that “The cost pressures that different companies face are different, depending on the product segment you are in, as well as whether the company has pricing rights. There are more than 500 specifications for single car tires. According to the average, the cost of ordinary car tires will increase by approximately 15%, and the cost of trucks and engineering tires will increase by 25% to 30%."
Cao Kechang introduced the cost killer in detail. The three major raw materials for producing tires are natural rubber, butadiene rubber, and styrene-butadiene rubber. Taking a 16-inch mouthpiece with a passenger car tire as an example, each tire requires 1 kilogram of natural rubber, 2 kilograms of butadiene rubber, and 2 kilograms of styrene-butadiene rubber. Since September 30, 2009, natural rubber has once approached historical highs, rising by about 960 US dollars per ton, which is equal to 45%; butadiene rubber has increased by 39% per ton; SBR has increased by 37% per ton, which translates to The increase in natural rubber, butadiene rubber, and styrene-butadiene rubber prices for each tire is approximately 6.56 yuan, 10.26 yuan, and 8.55 yuan, respectively, which means that the fixed cost for each type of passenger car tire will increase by approximately 25.36 yuan, or the cost. The year-on-year increase of 17% (the cost of the original three types of raw materials is 170 yuan per tire).
Tire business people expect that the tire industry's troubles in 2010 will not be reversed. First, the setback will further expand, and some companies with a large inventory of low-priced rubber will be in trouble in the second quarter. After its stock is used up, it can only purchase raw materials such as rubber at current prices, and then it can only raise prices to cope with the cost problem. Secondly, companies are currently looking to the domestic market. Once the domestic automobile demand is repeated, the demand for tires will decline, and tires will be squeezed by the up and down industry chain.
The second wave of price increases before the holiday
In the face of tremendous pressure, companies make different choices. It is understood that some truck tire manufacturers in the third and fourth-tier cities have stopped production, while other mainstream companies have chosen to increase prices.
Since January, the prices of tyres have continued to grow. Fengshen Tire staff said that because the company's business consists of export, complete vehicle supply, and after-sales market, the company is currently negotiating with exporters, domestic distributors, and entire vehicle companies, hoping to increase tire production prices.
Shen Jinrong, chairman of Hangzhou Zhongce Rubber Co., Ltd., a leading price riser, stated that on January 19th, the company’s four-brand tires, Chaoyang and Luck, had an ex-factory price increase of 5%. Another tire giant tire in China has also raised its price by 5%.
Company employees revealed that tire prices have just begun. Cao Kechang pointed out that "after the first wave of domestic tire prices in January, the domestic tire industry will be the second price increase before and after the Spring Festival." Linglong tire staff said that due to the pressure of rising costs, will continue to raise prices in March 6 %about.
However, the price increase does not guarantee that the profitability of tire companies will return to highs. Cao Kechang pointed out that the domestic tire industry is a highly competitive industry, most domestic companies do not have the right to pricing, so they are not dare to substantially increase prices, so it can not fully absorb the pressure of rising costs.
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