Tire industry: high-end market to break through

China is a tire production and consumption country, upstream raw material prices and the lack of high-end market has become the industry's two most intractable core problems.

Recently, tire companies have released 2022 performance forecasts: Linglong Tire is expected to achieve a net profit of 240 million yuan to 280 million yuan, down 65% to 70%; Qingdao Double Star pre-loss of 540 million to 670 million yuan, the loss of 2021 increased by 68.59% to 109.18%; Giti Tire is expected to achieve operating income of 3.332 billion yuan to 3.682 billion yuan, net profit attributable to shareholders of listed companies is 29.19 million yuan to 43.78 million yuan, withholding non-net profit is 25.45 million yuan to 38.18 million yuan.

From the performance forecast that has been released, tire companies have generally encountered no small difficulties.

Constant upstream pressure

The brand premium of Chinese tires is lower than that of foreign tires, so the gross profit margin of Chinese tire enterprises is lower. In the first three quarters of 2022, the gross profit margin of domestic tire leader Linglong Tire was 13.31%, the gross profit margin of Triangle Tire was 13.64%, and the gross profit margin of racing tire was 17.99%. As the gross profit margin of domestic tire enterprises is generally low, it is very sensitive to cost changes.

China's tire manufacturing costs are mainly composed of raw material costs, labor costs, depreciation costs, energy costs and freight costs, of which nearly 80% are raw material costs.

Taking Linglong tires as an example, in 2021, the raw material cost of Linglong tires accounted for 76.18%, and the raw material accounted for the largest proportion of rubber, reaching 50%.

Tire rubber is divided into natural rubber and synthetic rubber. In 2021, China's synthetic rubber output of 8.117 million tons, an increase of 9.72%; The output of natural rubber was about 850,000 tons, an increase of 22.80%. Due to the growing market demand, from 2016 to 2021, the annual production of natural rubber and synthetic rubber in China is on the rise.

At present, China has become the world's largest consumer of natural rubber. In 2021, China's demand for natural rubber was 5.949 million tons, a year-on-year increase of 98.30%, accounting for 42.25% of the global total consumption.

China's natural rubber gap is large, the need for a large number of imports every year. China's dependence on natural rubber imports is more than 85%, and the number of imports is far greater than the number of exports.

Customs data show that in 2022, the four countries with the largest source countries of China's natural rubber imports are Thailand, Vietnam, Malaysia and Indonesia, with annual imports of 2,696,100 tons, 1,496,400 tons, 651,400 tons and 180,000 tons, accounting for 44.48%, 24.69%, 10.75% and 2.97%. Thailand tops the list.

Not only that, the global natural rubber market supply is also very tight. According to the statistics of the Association of Natural Rubber Producing Countries (ANRPC), the global production of natural rubber in 2021 reached 13.88 million tons, an increase of 10.18%; Consumption increased 9.76 percent year-on-year to 14.079 million tons. From January to November 2022, the global consumption of natural rubber was 14.8 million tons, an increase of 1.9% year-on-year.

In the synthetic rubber market, China's synthetic rubber production in 2021 was 8.117 million tons, an increase of 9.72%; Apparent consumption was 11.899 million tons, down 15.37% year-on-year. Although consumption is decreasing and production is increasing, consumption is significantly greater than production, and a large number of imports are still needed every year.

Customs data show that in 2021, China's synthetic rubber imports were 4.38500 million tons, a decrease of 2.729 million tons from 2020; Exports amounted to 60,600 tons, an increase of 160,000 tons from 2020. Synthetic rubber imports far exceed exports.

In 2020, China's apparent consumption of synthetic rubber is about 14.066 million tons, an increase of 9.3%. In 2021, it will be 11.899,600 tons, a decrease of 15.37%. According to the "Rubber industry" 14th Five-Year "development planning guidelines", the rubber industry will maintain steady growth during the "14th Five-Year" period, and it is expected that the apparent consumption of synthetic rubber will reach 17.21 million tons in 2022. From this point of view, the supply of synthetic rubber in China in 2022 still needs a large number of imports.

Customs data show that in 2022, China's cumulative imports of natural and synthetic rubber (including latex) 7.36 million tons, an increase of 8.7%.

From this point of view, the cost pressure of upstream raw materials is difficult to change in the short term.

Growth can still be expected

From the supply side, data released by the National Bureau of Statistics show that in 2022, the output of rubber tires will be 856 million, down 5% year-on-year. In December 2022, the output of rubber tires in China was 69.908 million, down 15.2% year-on-year, and the decline in December was particularly obvious compared with the whole year.