Blatco and Kingdom Tyres’s Saudi Arabia tyre factories progress

Plans for two Saudi Arabia tyre factory projects were announced during 2022. In January 2022, Black Arrow Tire Company (Blatco) agreed to a tyre factory construction joint venture with Kumho. By June 2022, Kingdom Tyres, which describes itself as Saudi’s largest tyre producer, signed a provisional investment agreement with the Royal Commission for Jubail & Yanbu. Here Tyres & Accessories considers the latest developments with both projects and asks if the market is big enough for both factories?

What the Kingdom Tyres and Blatco projects have in common is that they are both being run by entities that don’t yet have an existing tyre factory. Similarly, they both target the fast-growing Saudi Arabian domestic automotive market as well as the wider Middle East and Africa markets.

The fact that neither player has run a tyre factory before makes partnership with an established tyremaker advantageous. Since Blatco signed a joint-venture MoU with Kumho in January 2022, that appears to put Blatco ahead at this stage in the game. However, while the MoU has been signed final confirmation remains outstanding. Nevertheless, Blatco CEO Adel Al Masood, recently told journalists that he expects Kumho to sign off on the project by the end of 2023. However, the fact that Masood also told journalists that Blatco buy in technology and produce tyres under the Blatco brand is telling.

Meanwhile, in May 2023 Kingdom Tyres invited “Indonesian companies” to partner with the Saudi Arabian business to construct a tyre factory in its home country. According to Kingdom Tyres, the invitation “aligns with the growing demand for tyre products, which has been increasing consistently over the years.” But it also gives the company the chance to play catch-up in the race to build Saudi Arabia’s first tyre factory.

For its part, the Saudi Trade Ministry’s Directorate of Export and Import Facilitation took “proactive measures” to engage Indonesian companies. That meant meeting with some of Indonesia’s leading tyre manufacturers, who are already exporting their products to Saudi Arabia in May 2023.

At this point, it is worth pointing why Blatco and Kingdom Tyres are courting South Korean and Indonesian tyre manufacturer support as opposed to cooperating with globally leading tyremakers from Japan, the USA or Europe. The simple answer is market share.

With a domestic tyre factory within its borders, the Saudi tyre market depends on imports from around the world. China is the largest import source followed by Japan and third-placed Korea (see chart). Since Blatco’s import chart focuses on where tyres are made, rather than which firms are making them, it probably undersells the role of leading Korean and Indonesian-connected tyre manufacturers which also produce a lot of tyres in China. In other words, the actual replacement market share of South Korean brands like Hankook and Kumho is likely to exceed the 15 per cent proportion and could well represent the biggest piece of the pie.

It is more difficult to estimate who Kingdom Tyres’s manufacturing partner might be. In terms of Saudi tyre market share something similar is true of “Indonesian” tyres to what we can see with South Korean-originated products – albeit to a lesser extent. However, while Giti-connected Gajah Tunggal and Elang Perdana might be two of the biggest Indonesian tyre makers, other firms such as Cheng Shin-Maxxis (to name just one) also make tyres in Indonesia.

What we do know is that the proposed Indonesian collaboration includes the provision of raw materials, skilled professionals, and technical personnel, the Indonesian Trade Attaché in Riyadh told several local news sources in May.

The attaché further explained that the Kingdom Tyres factory project would be constructed in the industrial city of Yanbu, Saudi Arabia – the very same location as the Blatco-Kumho JV. So, what’s so interesting about Yanbu?

Both projects planned within the Yanbu Rubber Cluster

Yanbu city is the third-largest global oil refining hub, with a capacity of more than 1.1 million barrels a day. It is also the largest oil shipping port on the Red Sea and a major liquid handling terminal.

Around $68 billion has already been invested in the area and private sector investment is said to be growing at an average annual rate of 12 per cent.

While Yanbu is built around oil-refining, it is also targeting seven other “clusters”. Of these, Automotive and Rubber (which is signified by a tyre in official literature) are most relevant to tyre factory projects.

Yanbu is also home to a rubber institute that can train employees and provide skilled workers. Both the Blatco and Kingdom Tyres projects are seeking to take advantage of those training opportunities.

Is Saudi big enough for two tyre plants?

Arabian replacement tyre market share by tyre manufacturer nationality (Source: Blatco)

So, Yanbu offers obvious strategic advantages, but is Saudi Arabia big enough for two tyre plants?

2022 estimates put the annual value of the “vehicle tyre” industry in Saudi Arabia at US$4 billion, with an average annual growth rate of 6 per cent.

In unit terms, some sources report that market demand is currently around 30 million tyres a year. However, other sources suggest projected demand for tyres in Saudi Arabia will reach 72.32 million units annually by 2032. Blatco’s target is to control around 15 per cent of the Saudi market by 2026, which would make domestic competition – especially in the car tyre sector – fierce.

Apart from enhancing its position in the domestic Saudi tyre market and the regional tyre markets, the upside for any tyremaker investing in a Saudi tyre factory is that it avoids import tariffs associated with Chinese factories and some other Far Eastern countries.

Then there are synergies when it comes to rubber. Firstly, Indonesia is a key source of natural rubber for global export markets. And secondly, as an oil-producing nation, Saudi Arabia is a key market when it comes to synthetic rubber. Any kind of Saudi-Indonesian cooperation would therefore be beneficial both in economic and strategic terms, ensuring that Saudi-made tyre compounds were not unduly biased towards synthetic rubber.

Government support is also extensive for any successful project and the benefits of regional free trade agreements are undeniable, as Blatco CEO Adel Al Masood told Tyre Trends recently:

“We are fortunate to receive significant support from the government, including access to land, loans with favourable terms covering up to 70 per cent of the capital and assistance with human resources.

“….As a company, we also benefit from low-cost oil and gas resources and affordable land rents. We will utilise these advantages and pass on the benefits to our customers. This will make us highly competitive in terms of both pricing and quality. Additionally, we can export our tyres to many Middle Eastern countries with no customs duties thanks to free trade agreements.”

Masood concludes that all these points make Blatco tyres “15 to 25 per cent cheaper than our competitors while maintaining competitive quality.”

For its part, Blatco is aiming for a 50:50 domestic sales versus exports ratio. Exports will focus on neighbouring countries including Egypt, UAE, Iraq, Iran as well as North Africa. Together those countries generate demand for around 100 million tyres each year.

So, is Saudi big enough for two factories? On its own, it does offer some attractive benefits. But two factories next-door stretches these to the limit. When you take the exports into account, having two plants is much more feasible – especially if those plans include an international partner with global export opportunities.

Blatco set to start construction in Q4 2023; Kingdom Tyres groundbreaking unknown

Blatco reports that its tyre production plant, will start construction between the end of third and the fourth quarter of 2023. Different reports suggest it will cost between $1.2 billion and $1.5 billion. In the first phase, the Blatco factory aims to produce 7-7.5 million passenger, light truck and truck tyres a year. These will reportedly range from 13-inch to 33-inches in rim diameter. But the plan is to double output to 15 million tyres a year in phase 2. However, even at phase 2’s increased production levels $1.5 billion sounds like quite an expensive project for that scale of factory.

Kingdom Tyres’s strategy is a little different. They have agreed investment of 4.125 billion riyals ($1.099 billion) from the Royal Commission for Jubail & Yanbu associated with five hectares of land. But the Kingdom Tyre factory will be a bit smaller, focusing on annual production capacity of 5 million tyres – at least in the first phase. Product-wise Kingdom Tyres aims to make everything car, light-truck, UHP and SUV tyres as well as scooter tyres, bias truck tyres, military tyres and agricultural tyres.

The goal is to source 70 per cent of the raw materials used in manufacturing from local materials, which is likely to bias compounds towards the use of synthetic rubber. A problem that is likely to be solved with the involvement of an Indonesian tyre manufacturer.

If and when either or both products see the light of day remains to be seen, but – as is always the case in these instances, the proof of the pudding is in the eating. The Blatco bid certainly seems to be further down the line that the Kingdom Tyres project, but the recent reports of collaboration with an Indonesian could make a big difference to that project.