Tire industry research framework and investment perspective

Overview of tire industry chain

Tire upstream raw material - natural rubber

The production cycle of natural rubber is longer than that of chemicals, because the planting time of natural rubber takes about 7 years, and a rubber tree usually has a life of 40 years, so the supply rigidity of natural rubber is very strong, and the current natural rubber production capacity is determined by the planting situation 7 years ago or even longer ago.

After 2011, with the weakening of natural rubber prices, the new planting area of natural rubber in the world has gradually decreased, resulting in the total planting area has been maintained at a relatively stable level, and the cutting area representing the actual production capacity of Tianan rubber is still growing. Looking forward to 2023, as long as the price of natural rubber does not appear lower than the cost for a long time, the main production country will still increase slightly, and the global supply of natural rubber will continue to be loose.

From the perspective of the downstream consumption structure of the industry, the product with the largest consumption of natural rubber is still the tire industry, and the consumption proportion is as high as 67%. In addition, latex products, rubber shoes, tires, rubber hose tape, etc., are also important consumer areas of natural rubber, and the operating status of the tire industry has a direct impact on the natural rubber industry.

In 2023, the global and Chinese rubber supply is overall loose, overseas tire consumption is in the process of recovery, domestic demand is expected to improve, the overall supply and demand is still in a loose state, and natural rubber prices are expected to remain low and volatile.

Tire upstream raw material - synthetic rubber

The synthetic rubber used in tires is mainly butadiene rubber and styrene butadiene rubber. Synthetic rubber and natural rubber have strong complementarity, and most tire manufacturers basically mix the two kinds of rubber. The upstream raw material of synthetic rubber is mainly butadiene, and butadiene is mainly a by-product of ethylene cracker in refinery, so the price of synthetic rubber is closely related to oil prices.

From the point of view of supply and demand, synthetic rubber is still in the stage of overcapacity and does not have the basis for a substantial price increase. As the oil price tends to stabilize, the price of synthetic rubber is expected to remain in a reasonable range, and the 23-year price is expected to decline.

Tire upstream raw material - carbon black

Carbon black can improve the physical properties of rubber to a large extent, and is an indispensable reinforcing agent in tires. Adding 30% reinforced carbon black to tires can increase the mileage of tires to 4-6 miles. Carbon black can increase the wear resistance of rubber products, extend the service life of tires and save costs.

Supply: The carbon black industry is a highly polluting and energy-consuming industry, the new supply in the industry is not much, the opening rate is also maintained at a low level, backward production capacity is gradually withdrawn, and the future supply is expected to continue to tighten. Demand: With the recovery of the global epidemic, the demand for carbon black will increase significantly in 2021, but due to the impact of domestic epidemic prevention policies in 2022, the demand will decline sharply, and it is expected to gradually pick up in 2023. Exports: About 54% of Europe's total carbon black capacity comes from Russia, Ukraine and Belarus, so the Russia-Ukraine conflict has led to a significant increase in China's carbon black exports. In addition, under the high oil price, the overseas cost advantage is reduced, and it is expected that the export of carbon black will remain at a high level in 2023. It is expected that the price of carbon black will remain high in 2023, and the level of profitability will be improved.

Tire upstream raw materials - rubber auxiliaries

Rubber additives are added in the process of natural rubber and synthetic rubber processing into rubber products, and are used to give rubber products the use of performance, ensure the service life of rubber products, and improve the processing performance of rubber rubber materials. Through scientific matching with rubber raw rubber, rubber additives can give rubber products high strength, high elasticity, aging resistance, wear resistance, high temperature resistance, low temperature resistance, noise reduction and other properties. Commonly used rubber auxiliaries are mainly accelerators, antioxidants, vulcanizing agents, processing auxiliaries, special functional auxiliaries, pre-dispersed rubber masterbatch and so on.

The upstream raw materials of rubber auxiliaries mainly come from the basic chemical industry such as salt chemical industry, coal chemical industry, petrochemical industry, mainly cyclohexane, phthalic anhydride, aniline, tert-butylamine, fatty acids, zinc oxide, wax and so on. Rubber additives downstream for all kinds of rubber products, including tires, rubber hoses, rubber belts, rubber sheets, rubber soles, seals and so on.

Midstream tire manufacturing

Tire products can be divided into bias tires and radial tires according to different structures, the most important difference between the two is the different form of tire cord fitting. Radial tires can be divided into all steel tires and half steel tires according to the different structure of the tire body, the main difference between the two is that the body and the belt layer of all steel tires are made of steel cord, which is generally used for load and construction machinery vehicles; The body of the semi-steel tire is made of rayon or other fibers, and the belt layer is made of steel cord, which is generally used for cars and some light trucks.

Tire downstream market

The downstream demand for tires mainly depends on the increase and ownership of global cars, corresponding to the downstream supporting market and replacement market of tires. The supporting market is the tire market for the new car production of the main engine factory, and the replacement market refers to the tire market sold by the after-sale end of the car for the daily replacement of the car.

Tire industry development and change

Competition pattern: The competitiveness of China's leading enterprises continues to increase

According to the current world tire ranking, although most of China's tire companies are still in the third and fourth echelons, the strength of the head tire companies is gradually improving, and the income volume of some enterprises ranks among the top in the world. Due to the accelerated expansion of Chinese tire companies, the market share of international giants is gradually being squeezed, and the market share of CR3 in 2021 is 35.7%, a decrease of 2.6 percentage points year-on-year. CR10's market share was 60.6%, down 4.5 percentage points year-on-year.

China has become the world's tire manufacturing center, and the structure is also changing, backward production capacity is gradually phased out, and the head enterprises are steadily expanding, and their competitiveness is gradually enhanced. The global market share of domestic Chinese-invested tire companies CR3 (Zhongce Rubber, Linglong tires, racing tires) has steadily climbed since the 1990s, and the overall share still has greater room for improvement. The market share of middle-tier enterprises has fallen since its peak in 2015, due to the lack of core competitiveness of some enterprises and more restructuring. It can be seen that the polarization of the tire industry is more serious, and the strong are stronger.

Development characteristics: The market space of all steel tires is gradually saturated, and it is greatly affected by macro-economy

For all steel tire products, the domestic technology is leading the world, whether it is supporting tire market or replacement tire market, we have a certain advantage, but because the terminal application of all steel tire market is commercial vehicles and engineering vehicles, closely related to macroeconomic development, market demand growth has slowed down in recent years, and the market space is gradually saturated. There are two main reasons for the gradual saturation of the all-steel tire market: 1) At the demand level, the growth rate of domestic fixed asset investment has slowed down year by year, resulting in a decline in the growth rate of the commercial vehicle transport market, which prevents the expansion of the all-steel tire market; 2) At the technical level, the progress of all-steel tire technology has gradually reduced the loss per unit mile of tires, greatly reducing the replacement frequency of all-steel tires.

Development characteristics: semi-steel tire brand barriers are high, supporting and replacement are promising

In the semi-steel tire market, brand barriers are very high, mainly in two aspects: 1) high-end car companies mainly supporting foreign brands; 2) Car companies in various countries are used to supporting their own brands of tires. Because domestic tires in the international position is not dominant, so high-end car companies supporting the preferred foreign brands, after decades of cooperation, has formed a good relationship between each other, other brands want to enter the market will need to pass a long certification time. In addition, due to cultural differences, car companies in various countries will consider their own tire brands first in the choice of matching tires.

There are two different development paths for semi-steel tires in the matching tire and replacement tire market: one is committed to expanding the matching tire market, through cooperation with the Oems, increasing the supporting research and development of various brands of models, in order to expand brand awareness and drive the sales of replacement tires; The other is committed to expanding the replacement tire market, by expanding sales channels or improving brand positioning, in the replacement tire market to create awareness.

Development trend: The proportion of large-size tires is gradually increasing

With the support of tourism and leisure demand for the development of the automobile market, and the gradual spread of the aesthetic mentality of great beauty, the proportion of SUV and MPV models in automobile sales continues to increase. Since 2016, the proportion of domestic SUV and MPV new car sales has increased and stabilized at about 35%, and the proportion of SUV and MPV in the new car sales structure in the United States is also gradually expanding. Limited by the tire flat life of 4-5 years, it is expected that the large-size tires represented by SUVs will enter the replacement outbreak period, coupled with the boost of the domestic car modification market, the large-size tire replacement market is expected to break out great potential.

Larger tires are more technical. The proportion of large-size tires in the global tire market shows a significant growth trend, in the supporting market, the market share of more than 17 inches in the tire market is increasing step by step, while the market share of less than 16 inches is gradually declining. Large-size tires are a strong proof of the strength of tire companies, more and more tire companies are accelerating the expansion of this field, for tire manufacturers, large-size tires mean greater manufacturing difficulty and higher technical requirements, which will also bring higher prices and profits. In the Chinese market, large-size tires have great potential for development in the future, and the head tire companies are expected to grab a larger market share in this field.

Sea freight changes: Sea freight rates have now fallen to a reasonable level

Since the beginning of this year, the tense situation of shipping continues to ease, the current sea freight has entered the rapid downward channel, the sea freight from Asia to the East of the United States, the West of the United States, and the European route has fallen by 64%, 80%, 84% since the beginning of the year, Europe and the West of the United States route has basically reached or close to the level before the current round of sea freight rise.

However, different from the market's previous expectations, the rapid decline of sea freight did not bring too much substantive benefits to the tire company, but we saw that the tire company's performance in the third quarter was lower than expected. The reason is that the market once thought that the decline in sea freight is good for tire companies to increase overseas orders, but in fact, the rapid decline in sea freight this round reflects the economic downturn, and the increase in dealer inventory pressure brought about by large-scale unloading of ships, so tire companies' overseas orders are actually more negative.

Tire industry chain key company analysis

Yanggu Huatai: rubber auxiliaries leading enterprises

The company is a leading enterprise in China's rubber auxiliaries industry, with an existing vulcanization auxiliaries system capacity of 100,000 tons, processing auxiliaries system capacity of 55,000 tons, protection system capacity of 25,000 tons, and rubber masterbatch system capacity of 20,000 tons. A new type of antioxidant is being developed, and a demonstration line of tonnage pilot production is planned to be completed by the end of 2023; Invest 65,000 tons of silane coupling agent, is expected to put into production in 2024, invest 40,000 tons of trichlorosilane, improve the industrial chain layout; Research and development of lithium new energy related additives, and plan to complete the pilot test of vinylene carbonate (VC) and fluorovinyl carbonate (FEC) by the end of 2022; Research and development of new varieties in the field of large health, and plan to complete the lipoic acid pilot study by the end of 2022.

Black Cat shares: carbon black leading enterprises

The company is currently the leading enterprise with the largest carbon black production capacity in China. At present, the capacity of carbon black 1.1 million tons/year, special carbon black 130,000 tons/year, precipitated white carbon black 60,000 tons/year, gas phase white carbon black 2,000 tons/year, coal tar deep processing capacity 950,000 tons/year and exhaust generator unit installed capacity 150MW. We judge that the overall supply and demand in the future are still tight, and the industry is expected to continue to maintain a high prosperity. On the supply side, the carbon black industry is a highly polluting and energy-consuming industry. With the improvement of environmental protection requirements and the impact of dual-control energy consumption policies, the new supply continues to maintain a low growth rate. Moreover, due to the impact of dual-control energy consumption policies, the approval progress of new projects may also be extended, and the supply is expected to tighten in the future. On the demand side, with the growth of demand in the downstream tire market and the recovery of the epidemic, the Russia-Ukraine conflict will continue to drive domestic exports to maintain a high level.

Senkirin: Tire leader, focusing on overseas replacement market

The company has two production bases in Qingdao and Thailand, of which the maximum production capacity of Qingdao production base can reach 14 million semi-steel tires; The first phase of the Thai factory was completed in 2015, with a design capacity of 10 million semi-steel tires; The second phase of the Thailand plant will be completed at the end of 2021, with a design capacity of 6 million semi-steel tires and 2 million full-steel tires, and it is expected to achieve full production in the second quarter of 2023. The company is preparing to build a plant in Spain and a plant in Morocco, with a design capacity of 12 million /6 million, respectively, which is expected to be gradually completed and put into operation in 2024.

Cylun Tire: tire leading enterprises, mainly replacement market

The company's existing production capacity is mainly concentrated in the domestic and Southeast Asia, the domestic side has Qingdao, Dongying, Shenyang, Weifang four bases; Overseas, there are two bases in Vietnam and Cambodia. It is estimated that the company has a production capacity of 58 million semi-steel tires, 13.75 million full-steel tires and 160,000 tons of off-highway tires. The projects under construction mainly include 6 million semi-steel tires in Weifang (partly built), 9 million semi-steel tires in Cambodia (partly built) and 1.65 million all-steel tires, and the third phase project in Vietnam (3 million semi-steel tires, 1 million all-steel tires and 50,000 tons of off-highway tires). The company's production capacity has a leading advantage in China, and off-highway tires are also one of the highlights of the company, and the profit level is relatively higher.