High barriers and good profits, enterprises to accelerate the layout

Off-highway tires (OTR) : A small, fast-growing market for tires

Off-highway tires, also known as special tires, are mainly used in large farms, open and underground mining mines, port terminals, construction industry or other special fields. According to the size of the division, off-highway tires can be divided into ordinary size tires and giant tires, tire industry generally the inner ring diameter of 49 inches (inches) below the product is called small and medium-sized size off-highway tires, 49 inches and above products are called giant tires. According to the specific application field, off-highway tires can be divided into agricultural tires, engineering tires, aviation tires and military special tires. According to the structure, off-highway tires can also be divided into radial tires, bias tires, solid tires and so on.

Off-highway tires are a segment of the tire industry. According to the statistics of the Michelin 2022 annual report, 60% of the global tire market consumption in 2021 is passenger car and light truck tires (half steel tires), 30% is truck and bus tires (all steel tires), and 10% is other tires. Off-highway tires belong to this 10%, which is a relatively small market segment in the tire industry. From the perspective of the market share of global tire companies, Michelin, Bridgestone and Goodyear are the three global tire giants, with a global market share of 14.6%, 13.6% and 8.2% in 2021, respectively, and a total of 25.0% for medium-sized tire companies and 38.6% for other tire companies. Superimposed off-highway tires are a subdivision of the tire industry, so the number of enterprises with off-highway tire production technology and production capacity is relatively small.

At present, the market demand for off-highway tires in the world is strong, and many institutions predict that the market size will grow by 5%-7% in 2023-2027. According to the forecast of MARKETS AND MARKETS, the global off-highway tire market in 2022 is 8.7 billion US dollars, and will grow to 11.4 billion US dollars at a compound growth rate of 5.5% in 2022-2027, and the market space is broad; According to the prospectus of Haian Rubber and the forecast data of TechSci Research, from 2021 to 2027, the annual growth rate of the global off-highway tire market is about 6.7%.

Driven by multi-subdivision downstream areas, off-highway tires are in high demand

The rapid development of construction machinery, agriculture and other fields has driven up the demand for off-highway tires. The downstream demand for off-highway tires is wide, and the demand for related tires in mining, agriculture and other fields shows a steady growth trend. Compared with the relative saturation of passenger car tires and commercial vehicle tires in the stock car market and the stable replacement frequency, off-highway tires continue to grow under the influence of factors such as the steady improvement of mechanization rate in downstream agriculture and mining and the increase in business volume. In terms of construction machinery, the downstream of construction machinery involves infrastructure construction, real estate, mining and other industries. Engineering tires are mainly used in engineering vehicles and construction machinery, including dump trucks, scrapers, excavators, loaders, bulldozers, graders, road rollers, beach road machines and construction vehicles such as cranes, concrete mixers and transport vehicles. The vigorous development of the port transportation industry at home and abroad, the popularization of modern manufacturing logistics mechanization and automation, and the countries along the Belt and Road and developing countries such as South America vigorously promote infrastructure construction, which has strongly promoted the continued growth of the demand for special tires in the engineering industry. Global and China's mineral product production continues to grow, the mining industry continues to rise and expand, is expected to continue to promote the growth of tire demand. Tires are one of the key consumables for mining transport vehicles, and according to the prospectus of Hai 'an Rubber and Syncrude Canada, tire consumption costs account for about 24% of vehicle operating costs in a large open-pit mine. In order to reduce the operating costs of mining companies and improve the efficiency of mining tires, improving the life and service life of tires is also an important trend in the development of mining tires. In agriculture, agricultural tires can be used in tractors, tillers, harvesters, rice transplanters, weeders, cultivators, spray machines, planters, field transport vehicles and livestock machines, etc., mainly benefiting from the continuous increase in the mechanization rate of agricultural machinery.

(A) Construction machinery field: infrastructure, mining and other downstream steady development

The downstream of construction machinery involves infrastructure construction, real estate, mining and other industries, and tires belong to the more upstream position in the industrial chain. Downstream infrastructure investment growth, mining growth, etc., will promote the demand for construction machinery to pull up the demand for construction machinery tires.

With the acceleration of the world's industrialization process, the global off-highway tire production continues to rise. According to Frost and Sullivan estimates, the global off-highway tire production in the engineering tire to maintain a continuous upward trend, from 100 million in 2016 to 340 million in 2021, the compound annual growth rate of 27.73%, 2026 global engineering tire production will further increase to 500 million.

The demand for construction machinery is strong, driving the demand for construction tires to rise. In recent years, China's construction machinery sales have grown significantly, from 490,000 units in 2015 to 1.71 million units in 2022, with a CAGR of 19.42%, mainly due to the strong demand for downstream infrastructure and mining. In particular, in 2020-2021, the sales volume of construction machinery in China has increased significantly from 1 million to 1.8 million, and the growth rate has further increased. In 2022, China's construction machinery sales fell 8.13% to 1.71 million units, on the one hand due to the high base in 2021, on the other hand, we believe that is mainly the real estate industry cycle downward factors, but still higher than the 2020 level. We believe that in the future, with the gradual strengthening of national macroeconomic policy control, infrastructure construction is accelerating, and the policy of the real estate industry is gradually optimized, the demand for construction machinery is expected to rise, and the demand for construction machinery tires is also expected to rise further. Construction machinery exports continue to force. In addition, China's construction machinery industry is in a perennial trade surplus position, after 2020, driven by strong overseas demand, China's construction machinery exports have significantly recovered and increased, with a year-on-year growth rate of 62% and 30% in 2021-2022.

1. The output of mineral products shows a steady growth trend, driving the demand for mining tires

From a global perspective, the output of many mineral products is generally stable. Taking coal as an example, global coal production has increased significantly since the beginning of the 21st century, fluctuating around 8 billion tons from 2011 to 2021, and reaching a record high of 8.8 billion tons in 2022. From 2005 to 2022, global copper mine production increased from 14.91 million tons to 21.9 million tons, with a compound annual growth rate of 2.28%, basically maintaining an annual growth trend. From 2017 to 2022, the global production of iron ore, cobalt ore, nickel ore and other minerals has fluctuated, but the overall growth trend is still maintained.

From the perspective of our country, the output of many major mineral products continues to grow. From 2004 to 2022, China's raw coal production increased from 1.992 billion tons to 4.559 billion tons, with a compound annual growth rate of 4.71%; China's iron ore production increased from 310 million tons to 967 million tons, with a compound annual growth rate of 6.53%. Cement production increased from 967 million tons to 2130 million tons, with an annual compound growth rate of 4.48%. The output of ten non-ferrous metals also increased from 14 million tons to 68 million tons, with a compound annual growth rate of 9.00%. With the growth of investment in the domestic mining market, the demand for mining machinery tires has risen. We believe that with the rise in demand for mineral products and the development of the mining industry, China's mining machinery industry is developing steadily, and the demand for mining tires is also expected to grow further.

In recent years, the operating income of China's mining industry has increased, and the demand for mining tires is expected to increase. Since 2021, under the influence of tight coal supply and demand, the Russia-Ukraine conflict and other events, China and the international energy and main mineral products prices have risen, and the operating income of China's mining industry has increased by 39% and 31% respectively in 2021 and 2022. Superimposed on China's coal, iron ore and other important raw materials and primary products to maintain supply and stable price policy and other factors, boosted the enthusiasm of enterprises to invest in the mining industry, China's mining industry fixed capital investment in 2021-2022 growth. With the growth of investment in the domestic mining market, the demand for mining machinery tires has risen. We believe that with the rise in demand for mineral products and the development of the mining industry, the demand for China's mining machinery industry is expected to improve, and the demand for mining tires is also expected to further grow.

2. Infrastructure investment is at a relatively high level

The growth rate of investment in infrastructure construction is expected to continue at a high level, driving up the demand for construction machinery tires. According to the statistics of Hailing International construction Machinery Trading Center, infrastructure construction accounts for about 40% of the total downstream demand for construction machinery, and has the largest pulling effect on the demand for construction machinery. In 2022, China has introduced a series of stimulus policies, the approval of infrastructure construction projects significantly accelerated, China's infrastructure investment growth rate reached 11.52%, according to Wind consensus expectations, 2023-2024 China's infrastructure investment growth will remain at a high level.

New infrastructure with technological revolution and industrial upgrading as its core has been strongly supported by policies. On April 20, 2020, the National Development and Reform Commission (NDRC) press conference officially clarified the definition of new infrastructure: new infrastructure is an infrastructure system that is guided by new development concepts, driven by technological innovation, based on information networks, and oriented to high-quality development needs, providing digital transformation, intelligent upgrading, integrated innovation and other services. China's "14th Five-Year Plan" clearly states that it is necessary to coordinate the development and construction of new infrastructure, and the new infrastructure is expected to increase the demand for green and high-end construction machinery tires.

(2) In the field of agriculture: Under the general trend of mechanization, the demand for tires will increase

In the context of continuous improvement of mechanization rate in agriculture and increasing agricultural machinery and equipment, we believe that the demand for agricultural replacement tires is increasing, and the demand for agricultural tires continues to rise. According to Mordor lntelligence statistics and forecasts, the market value of agricultural tires in 2021 is 6.248 billion US dollars, and is expected to exceed 8.821 billion US dollars in 2027, with a CAGR of 5.13% in 2022-2027. In addition, by region, Mordor lntelligence expects the U.S. agricultural tire market to grow at a CAGR of 5.36% in 2022-2027, mainly because tire companies have full confidence in the prospects of agriculture, improve production capacity and launch new tire models to adapt to different segments of the tire market. The agricultural tire market in China, Europe and other places is also expected to usher in rapid development.

The downstream of agricultural tires mainly corresponds to agriculture, which is a basic industry to ensure the national economy and people's livelihood. With the growth of the global population, we believe that the demand for agricultural products is expected to increase steadily. At the same time, the price of agricultural products will also have a corresponding promoting effect on the demand for agricultural machinery. From 2001 to 2022, the global corn, wheat and soybean production will all increase with a fluctuating CAGR of 3.16%, 1.48% and 3.36%, respectively. Since 2020, affected by factors such as COVID-19 and the Russia-Ukraine conflict, global food prices have risen, and the global food price index reached 159.71 in March 2022, reaching the highest level in history, far exceeding the level of around 100 in 2015-2019. Although there is a downward trend, it is still higher than the pre-epidemic level. Steady agricultural demand and rising food prices are expected to boost the demand for agricultural machinery, which in turn will boost the demand for agricultural tires.

China's agricultural mechanization rate continues to improve, the use of tractors, tillers, harvesters and other agricultural machinery and equipment is expected to drive the demand for agricultural tires. In terms of agricultural mechanization, according to the statistics of the National Statistical Bulletin on the development of agricultural mechanization in 2021, the comprehensive mechanization rate of crop cultivation and harvest in China in 2021 reached 72.03%, an increase of 0.78 percentage points over the previous year; Among them, the mechanical tillage rate, the mechanical sowing rate and the mechanical yield rate reached 86.42%, 60.22% and 64.66%, respectively. The mechanization rate of animal husbandry, aquaculture, agricultural product preliminary processing and construction agriculture reached 38.50%, 33.50%, 41.64% and 42.05%, respectively. They were 2.72, 1.85, 2.45 and 1.51 percentage points higher than the previous year. The "14th Five-Year Plan" National Agricultural Mechanization Development Plan issued by the Ministry of Agriculture and Rural Affairs clearly indicates that the comprehensive mechanization rate of crop cultivation and harvest will reach 75% in 2025. The agricultural mechanization rate in developed countries is generally above 90%. China's agricultural mechanization level still has great room for improvement.

China has issued a number of policies to promote the development of agricultural mechanization, including increasing the research and development and promotion of agricultural machinery, and increasing subsidies for the purchase of agricultural machinery. The "14th Five-Year Plan" National Agricultural Mechanization Development Plan of the Ministry of Agriculture and Rural Affairs clearly points out that agricultural mechanization is a key starting point and basic support for accelerating agricultural and rural modernization. We believe that with the continuous promotion of urbanization and modernization in China, the new generation of rural population is accelerating the flow to cities and towns, the aging trend of rural labor force is obvious, the shortage of young and middle-aged labor has become the norm, and the labor cost of agricultural production is rising year by year. Accelerating agricultural mechanization is an important way to ensure agricultural development, and there is a broad space for development in the future.

The overall development trend of agricultural machinery in China is relatively stable, and the total power of agricultural machinery and the number of agricultural machinery have steadily increased in recent years. The total power of agricultural machinery refers to the sum of the power of various power machinery mainly used in agriculture, forestry, animal husbandry and fishery, which reflects the development level of agricultural mechanization in a region to a certain extent. In addition to the decline in the total power of agricultural machinery in 2016 due to the switch of agricultural machinery emission standards "Country 2" to "Country 3", the total power of China's agricultural machinery has generally shown an upward trend year by year, and the year-on-year growth rate in 2019-2020 is more than 2%. The number of agricultural machinery in China increased from 198 million in 2018 to 206 million in 2021, with a CAGR of 1.3%.

We believe that China's agricultural machinery scale expansion at the same time, there is also a trend of large and medium-sized, high-end, intelligent, this development trend will have a profound impact on agricultural machinery accessories, especially tires, will lead to agricultural machinery tires continue to large and medium-sized, while the various performance requirements of agricultural tires and production demand continues to increase. In March 2021, the "Guidance on the Implementation of agricultural machinery Purchase Subsidies from 2021 to 2023" announced the new subsidy standards for agricultural machinery purchase, and stressed that it is necessary to achieve "rise and fall", which increased the proportion of subsidies for urgent machinery and intelligent, complex and high-end products from 30% to 35%. It can be seen that the subsidy policy is tilted toward technologically advanced agricultural machinery products, and the future development prospects of intelligent and complex agricultural machinery products are broad.