Page 18 - CTB N19 - 2017-03

INTERNATIONAL NEWS
Shaw Puts Chinese Tyres Under the Spotlight
This is primarily because the Chinese manufacturers tend to work on cost plus basis, whereas premium brands work on a brand basis giving themselves a much higher profit margin with which to play with. Typically, raw materials as a percentage of sales is between 20-35% for a top brand whereas for Chinese and Indian manufacturers it can be as much as 50-70%.
This means that the Chinese have to react immediately to raw materials price increases, whereas the brands can delay the rise as they have more margin to play with. As a result the premium tyre manufacturers between September and the early part of 2017 saw increases in sales while they simply prepared for rises at a time when the Chinese had been forced to raise their prices.
All of this, of course, is bad news for the retreading industr y because it means that tyre prices will continue to fluctuate in line with NR prices, making it difficult for retreaders to formulate a cohesive strategy if the industry remains over-reliant on maintaining an ongoing and stable price differential between the price of retreads and cheap new tyres.
In the longer term, though, the situation is perhaps not so critical. Shaw, like many commentators pointed out the developing split in China between the top 10-12 Chinese manufacturers and the rest. A gradual change of culture, he
pointed out, was making it easier for smaller factories to close without their managers suffering a loss of face. Consolidation, he argued, was already underway but being held back by inter-personal rivalries. There was also a deep resentment against US Government in China due to the perceived unfairness of anti- dumping actions. At the same time, he added, China was now beginning to focus on better marketing, brand management and a more international approach to management, which would also eventually bear dividends.
This, of course, does not help retreaders in the short and medium term, and reinforces the argument put forward by this magazine that the retreading industr y must do more that throw its hands in the air in despair and expect governments to sort the situation out for it, for it may be whistling in the wind. If the industr y associations can truly persuade governments to intervene on behalf of retreaders and sidestep all the various alternative interests that are at play here, then all power to them, but in the opinion of this magazine, the situation is far from irretrievable and depends on the retreading industr y coming together and marketing itself properly, something which the industr y over the years, with ver y few exceptions and for many different reasons, has manifestly failed to do.
The impact of the activities of the Chinese tyre manufacturers on the whole of the global tyre market – not just the new tyre sector, but the retreading market too, has received considerable coverage in the pages of the tyre press. Of particular importance in influencing market trends has been the 70% hike in raw materials prices that occurred
to rise and fall with NR prices, and on the basis of that, Shaw predicted that prices will continue to fall in the coming months.
But there is much more to it than that, Shaw explained, not least a couple of extraordinar y circumstances, which have particularly affected the pricing scenario over the course of the
David Shaw
between September and December last year, how this
has affected prices to the retailer, and how it continues to shape the fortunes of the retreading industr y, the mood which turned from doom and gloom to bright optimism almost overnight.
The whole topic of Chinese tyres was raised again at the recent Latin American Tyre Expo in Panama thanks to an illuminating presentation by keynote speaker David Shaw of Tire Industry Reseach, who brought the tyre pricing issue into sharp focus.
In explaining the recent volatility of new tyre prices, Shaw focussed in on a number of key facts. The first is that more rubber is now being used in tyre manufacturing because tyres are getting bigger. At the same time tyre manufacturer revenues are down 17.5% since 2012 making them more vulnerable to fluctuations in raw materials costs. The third point, and it may seem an obvious one, is that tyre prices do tend
last nine months.
The first of these was that in September last year the Chinese Government enforced vehicle legislation, which led to a doubling of truck sales in China, something which no-one saw coming. This led to a rapid increase in demand and a consequent rise in
prices. There was also,
said Shaw, a drought in Thailand which
restricted the supply of
rubber, a situation,
which has now
normalised. Tyre makers,
he explained, have now
fulfilled the glut of
orders arising from the
market situation in
China, and are looking
for sales again. Prices
therefore are coming
down and are likely to
continue to do so.
In addition to these
outside influences, Shaw pointed out that
Chinese tyre prices are inherently more volatile
than the top brands.
of
David Shaw was speaking at the Latin American Tyre Expo in Panama
18 Commercial Tyre Business