Will the future be better? Year-end summary of China’s tyre industry in 2022

At the end of 2022, China is gradually ending epidemic prevention and control, and the country’s tyre industry is keen to usher in the benefits. However, many professionals are still considering how to survive adversity during the same period, asking whether the future offers reasons for optimism. There is no doubt that we are at an important moment of historical change. With 2022 about to pass, Tyrepress China looks at the state of the business following a year of flux and crisis through the prism of ten key terms.

Epidemic

While much of the world has focused on opening up after the pandemic conditions of the preceding years, Covid-19 has continued to cast a shadow over the Chinese tyre industry in 2022. What the epidemic and its accompanying secondary disasters have brought about is not just “closed-loop management” and other new terms. The lockdown and traffic interruptions implemented to prevent the virus’s spread have profoundly affected the Chinese tyre industry. From raw material supply to product distribution, from manufacturers to distributors, every link of the entire industry has been impacted to varying degrees.

At the end of 2022, China relaxed its epidemic control and encouraged people to take steps to normalise activities. However, the sudden shift in policy saw the country experience a surge of Covid-19 infections in a short period. How this will affect China’s tyre industry in the next period of time is still unknown.

Elimination

The elimination of Chinese tyre companies is closely related to policies. Tyre manufacturing is an energy-intensive industry. The Chinese government’s requirements for manufacturing enterprises are energy conservation, environmental protection, low carbon emissions, and high-quality development. Under the guidance of such policies, many tyre companies need to transform and upgrade. Some enterprises that cannot rectify can only be forced to eliminate. According to data from the Shandong Provincial Department of Ecology and Environment, Shandong Province, one of the leading tyre production areas in China, shut down 11 tyre manufacturers in 2022, withdrawing production capacity of 19.8 million tyres.

In addition to manufacturers, many distributors are also undergoing an industry reshuffle. In 2022, “business is difficult” has become the consensus of many tyre salespeople. Some dealers with poor cash flow failed to escape the fate of being eliminated when the sales market was at a low point.

Weak market demand

In 2022, an important reason for “business is difficult” is the weak demand in China’s commercial vehicle tyre market. A well-known Chinese tyre company introduced its main operating data for the third quarter, saying that the Chinese commercial vehicle market remained sluggish from July to September, with sales down 10.65 per cent year-on-year. The weakening of the commercial vehicle market will inevitably have an important impact on the tyre OE business. The replacement tyre market is also facing difficulties. It is reported that many companies have reduced the frequency of road transportation to reduce carbon emissions and cater to the current environmental protection policy. The freight volume reduction means the demand for truck tyres is also decreasing.

In addition, after experiencing frenzy in the first half of the year, tyre exports began to fall gradually in August. From August to October, the number of Chinese tyre exports declined for three consecutive months.

Trade barriers

In 2022, the Chinese tyre industry tried to break down trade barriers. The European Court of Justice ruling in May revoked the European Commission’s anti-dumping and anti-subsidy tariffs on Chinese-produced truck tyres, giving Chinese tyre companies the hope of breaking down trade barriers.

However, China’s tyre exports continue to face trade barriers. Not to be put off by the ECJ’s judgement, the European Commission is revisiting its anti-dumping and anti-subsidy calculations on truck tyres produced in China. In addition, since January 2022, anti-dumping and anti-subsidy investigations (or rulings) by the United States, Turkey, South Africa, Brazil, and India have all involved Chinese tyre products. The barriers Chinese companies face when exporting tyres are unlikely to go away any time soon.

Low profit

In 2022, one of the difficulties that some tyre manufacturers need to face is that while sales revenue is rising, profits are falling. This conundrum has already arisen in 2021 and has continued in 2022. Many tyre companies attributed this problem to rising costs. Industry insiders suggest the price of raw materials such as carbon black will not drop. Due to the limited production of China’s steel industry, there was a shortage of coal tar, which in turn caused a large increase in the price of carbon black.

In 2022, especially after June, many tyre companies raised product prices several times. Meanwhile, shipping costs gradually returned to normal. Therefore, starting from the third quarter of 2022, many Chinese tyre manufacturers gradually solved the low profits problem.

Adjustment

In 2022, many tyre manufacturers adjusted their development strategies to meet the market’s needs. Sumitomo Rubber withdrew from the Chinese truck and bus tyre market in August. From 2023, the tyre manufacturer will no longer produce and sell truck and bus tyres for the Chinese market. The choice of Linglong and Aeolus is to adjust the product structure. Linglong said that the data in the third quarter showed that the proportion of passenger car tyres was higher, while the proportion of truck tyres decreased.

The overseas markets of some enterprises have also evolved. UK wholesale distribution company Stapleton’s Tire Services’ agreement with Triangle for exclusive distribution rights on Triangle-branded light vehicle tyres exemplify this. The market cultivation of the Guizhou Tyre Vietnam factory has not met expectations. Therefore, the tyre manufacturer dispatched seven expansion teams overseas to grab orders.

Leadership

In 2022, personnel changes in China’s tyre industry attracted much attention. Li Fanrong succeeded the retired Ning Gaoning and became the chairman of Pirelli. Song Erhua became the chairman of Fengyuan Tire. The top management of two Taiwanese tyre manufacturers, Nankang and Federal, also experienced personnel changes.

At the same time, several international tyre brands have replaced their heads in China. Veronique Giraud succeeds Dalibor Kalina as general manager of Continental Tires (China). On 1 March, 2022, Michelin announced that Ye Fei became the president and CEO of Michelin China. And Justin Foley became the president of Goodyear China.

Expansion

In 2022, the expansion of leading tyre companies has continued, whether at home or abroad. In China, Sailun decided to invest 15.18 billion yuan in establishing a large-scale manufacturing base in Dongjiakou, Qingdao, which can produce 30 million radial tyres and 150,000 tons of OTR tyres per year. ZC Rubber plans to invest 3.188 billion yuan to build a factory with a production capacity of 6.5 million sets of all-steel radial tyres. Overseas, Sailun and Jiangsu General prepared to invest in tyre factories in Southeast Asia, and Sentury promoted the progress of the Spanish factory.

In addition, companies such as Linglong, Aeolus, Wanli, Guizhou Tyre, and Jianxin have given their investment plans. With the tyre industry in a trough, large tyre companies are planning for future development.

OTR products

It is worth noting that Chinese tyre manufacturers have shown unprecedented emphasis on OTR products this year. In the future, the intensity of competition in this market segment may be beyond imagination. In 2022, in addition to the 150,000-ton production capacity plan of Sailun’s Dongjiakou factory, the investment plans of Linglong, Aeolus, and Guizhou Tyre also involve OTR products. At the same time, ZC Rubber and Zaozhuang Mining Group each acquired an OTR tyre factory this year.

In addition to greatly expanding production capacity, major tyre companies have also begun to make efforts on the market side, and their OTR products frequently participate in exhibitions. At the Bauma 2022 in Germany at the end of October, Tyrepress discovered the OTR products of Chinese tyre companies such as Triangle and ZC rubber.

New energy vehicle

The new energy vehicle industry is another hot spot in China’s tyre industry. The rapid development of China’s new energy vehicle industry has attracted the attention of many tyre manufacturers. In 2022, manufacturers such as Continental, Goodyear, Giti, Sentury, and Jiangsu General launched new energy vehicle tyres in the Chinese market.

In the field of OE, Linglong has cooperated with BYD in many ways. In e-commerce, Prinx, an electric vehicle tire brand under Prinx Chengshan, has reached a strategic cooperation agreement with JD.com. Focusing on the product of passenger car tyres, seizing the new energy vehicle tyre market is an important strategy for major tyre manufacturers to participate in future competition.