On the last day of March, China’s tire industry leader Zhongce Rubber issued three letters in a row, announcing price adjustments for a full range of products including passenger tires, truck and bus tires, and off-highway tires.
This action was regarded as a bellwether for the industry and officially announced that the tire industry has entered a new round of price increase cycle.
According to incomplete statistics, more than 70 tire companies, including Pirelli, Goodyear, Sailun, Linglong, etc., have issued price increase notices, and some companies have even launched the second round of price adjustments within the year.
The direct driver of this large-scale price increase is the soaring cost of raw materials.
Data shows that the price of synthetic rubber, the main raw material for tires, has been extremely strong recently. The price of styrene-butadiene rubber has reached 18,200 yuan/ton, and the price of butadiene rubber has reached 17,900 yuan/ton, both of which have exceeded the price of natural rubber.
This “upside-down” phenomenon in raw material prices, coupled with the general rise in the prices of petrochemical raw materials such as carbon black and additives due to geopolitics and rising international oil prices, has brought huge cost pressure to tire factories.
Longzhong Information data shows that rising costs have caused the entire tire production link to fall into a theoretical loss state.
As of March 27, the theoretical profit value of mid-range brand semi-steel tires is -1.25 yuan/kg, and the theoretical profit value of economical all-steel tires is -1.36 yuan/kg.
Under the rigid pressure of sharply compressed profit margins, price increases have become the only option for companies to protect their capital.
Faced with heavy pressure on the cost side, tire companies have launched an intensive price increase offensive since mid-to-late March.
The first round of price increases was implemented in late March, and some companies raised prices in disguise through recycling policies; the second round of price increases was implemented on April 1, with the increase generally ranging from 3% to 5%.
The price increase policy stimulated downstream replenishment sentiment in the short term, and corporate shipments were significantly concentrated in mid-to-late March.
Research by Zhuochuang Information shows that driven by the traditional peak season and expectations of price increases, the sales volume of sample dealers increased significantly month-on-month in March.
However, this growth is more reflected in the transfer of manufacturer inventory to the channel end.
Currently, channel inventory levels are at a high level, and it will still take time for terminal demand to be released, which has significantly increased the resistance to the downward transmission of price increase policies.
Looking ahead to the market outlook, raw material prices are expected to remain high.
Affected by the situation in the Middle East, the supply of crude oil is tightening, butadiene prices are easy to rise but difficult to fall. The price of synthetic rubber may continue to be strong in April. Although natural rubber faces pressure on the supply of new rubber, the high-price substitution effect of synthetic rubber will support it.
Taken together, the tire industry will continue to suffer from “high costs and poor terminal transmission” in April.
Raw material prices have provided strong upward support for the ex-factory price of tires, and the ex-factory price is still expected to rise in the next month.
However, due to insufficient follow-up of terminal market demand, and high oil prices pushing up logistics operation costs and suppressing terminal tire replacement demand, it is expected that the actual transaction price at the terminal will be mainly stable.
In the context of shrinking profits and high inventories, how to balance cost transmission and capacity utilization will become the core test facing tire companies.
