Tyre Shortage? Fujian Province Exported Over 32.85 million Tyres in 2010

While wholesalers importing Chinese tyre products into mature European markets such as the UK struggle to negotiate supply issues and brace themselves for another round of price increases, there are reports that tyre makers in one part of the People’s Republic are over-producing to the extent that they are actually stockpiling tyres.

Southeast China's Fujian province exported 32.85 million between January and November 2010, signalling a 27.6 per cent year-on-year increase in shipments, according to a report from the province's customs officials. The total value of the tyres sold is said to have amounted to US$460 million, a jump in value of 34.8 per cent over the corresponding period of 2009. The export price averaged $13.9 per unit, up 5.7 per cent from 2009.

To bring the issue into context, leading Asian tyre manufacturers such as Giti Tire and Cheng Shin Rubber (which produces the Maxxis brand) have significant manufacturing capacity in Fujian province. If the Fujian customs figures are right, the situation would seem to be something of a turnaround for Giti at least. In mid-December news reports suggested Giti Tire Corp had stated earlier in 2009 that its Fujian unit’s sales would have been negatively affected by the US import tariff ruling – if their sales from the Fujian factory match the trend across the area, it would seem things went considerably better than expected. For its part Cheng Shin currently runs two factories there and announced plans for a third at the end of August 2010. And this suggests the tyre manufacturer believe Fujian has something to offer when it comes to tyre production.

According to the Fujian customs report, most of the tyres produced in 2010 were exported to the Europe Union and the US. However due to apparent industrial overcapacity, tyre stock piles have reportedly been mounting up. But that’s not to say that the Chinese tyre manufacturers responsible have been any more profitable. A quarter more tyres generating a third more income may sound alright for the manufacturers, but the situation is more complicated than that.

Exports up, but Chinese firms say input costs are squeezing profits

Tyre exports may be up but Chinese manufacturers report that raw material costs are squeezing profits hard. According to the customs data the production costs of China’s tyre makers surged nearly 30 per cent during 2009, while profits fell 20.6 per cent.

According to one budget tyre manufacturer supplying tyres into the UK market, there are several reasons for the Chinese factories’ continued cost pressures. Of course there are the continuing issues of historically high raw material costs; extremely full production space; and infrastructure issues such as limited access to electricity from the Chinese government – all things the market is well versed in. However, there are also said to be a number of newer pressures in the personnel department, namely rising labour costs coupled with labour shortages.

Recently the Chinese government reportedly raised the minimum wage workers can earn by about 18 per cent. In addition to the fact that Chinese factories’ wage bills appear to be increasing there is the fact that the Chinese New Year holiday period regularly sees workers leave firms, return home and/or change employers. However, in the context of increased minimum wages Chinese human resource managers are expecting this effect to be more marked this year. The likely result? Another round of price increases for those sourcing their tyres from China.

Helpfully, the Fujian province customs information quoted above advised that the Chinese tyre industry should “make the best of their current production capacity and seek further consolidation through mergers and acquisitions.” Meanwhile, tyremakers are encouraged to strengthen innovation and reduce their production costs by using new materials and other methods production. The leading players are clearly doing this, but if the unconfirmed reports of tyre stockpiling are anything to go by, not all Chinese manufacturers are shifting tyres as quickly as they would like to.

Related News:

• One Year On – Effiplus Introduction Fairing Well

• Conti Opens China Automotive Components Plant

• Wikileaks: Diplomats Bemoaned US Tyre Tariff Decision

• Reifen China 2010 Had 39% More Visitors