China Tire Report: Investment continues despite market difficulties

Article from the annual ERJ China Tire Report 2016, published as a supplement in the July/August issue of European Rubber Journal magazine:

While 2015 saw a general downtrend in China’s tire industry, developments within the sector were not limited to plant closures and capacity reduction.

A trend which has seemingly gathered pace in recent years is Chinese manufacturers’ appetite to expand overseas capacity, largely but not exclusively in southeast Asia.

Despite some higher upstream costs – including purchase of synthetic rubber, carbon black, antioxidants, steel cord and the likes – Chinese tire makers have embarked upon overseas manufacturing projects with more than $1.6 billion total investment.

In Thailand, household names such as Zhongce Rubber, Sentury and Linglong have already built or are about to complete new plants and have even started expansion projects.

In Rayong, Thailand, Zhongce Rubber is ramping up production of car and truck tires at its year-old factory, to reach its target of 4.2 million passenger and light truck radials and 700,000 truck/bus radials per year.

Next phase

Already established in Rayong, Shandong Linglong Tire Co. completed its truck and bus radial tire production plant last year and is now completing “phase 3” of the plant, which will focus on a tire-testing centre and rubber-compound manufacturing.

Linglong has signalled that its overseas expansion would not stop with Thailand, and it would follow a “3+3” strategy of development, with three plants in China and three internationally.

Qingdao Sentury Tire has also completed its new PCR factory 100 miles outside Thai capital of Bangkok, and has employed automation company Cimcorp to install a “state-of-the-art” facility there.

Similarly, Sentury has further expansion ambitions, and has already budgeted “several hundred” million dollars to build a 10-million unit/year passenger car tire plant in the US.

Company president Lanny Lin said in January that the company had targeted 2017 to “get established” within the US market.

Taiwanese Kenda Rubber, with manufacturing in Taiwan, China, Indonesia and Vietnam, broke ground on a second facility in Vietnam in Autumn last year.

The company is planning to build the €157-million car and light truck tire plant in Dong Nai Province. Set to start production by late 2017, it will produce 10,000 tires a day in phase I.

Earlier in December 2015, Sailun Jinyu Group announced plans to pump up to €202 million into a new Vietnam project comprising 1.2 million unit/year TBR capacity and 30,000 tonne/year OTR capacity.

The factory will be built in Gò D`ˆau, Tây Ninh province at the current Sailun site.

New locations

Further to the west, another Taiwanese manufacturer Cheng Shin Rubber is investing $400 million to build a plant in India to make products for two-wheelers. With a capacity of 20,000 tires and tubes a day, production at the site is expected to begin in early 2017.

The project is expected to go into production in May 2018, with a designed annual production capacity of 350,000 all-steel heavy truck radial tires, 500,000 semi-steel passenger car radial tires, 400,000 diagonal tires and 750,000 sets of inner tires and rim bands.

In Angren, Uzbekistan, Uzbekistan National Chemical in partnership with Chinese manufacturer Poly Technologies, has broken ground on a plant to produce 3 million steel radial automotive and 200,000 bias agricultural tires.

The ground-breaking for the €165-million project was held in October last year.

Domestic dip

Developments at home, however dominated by a general economic slowdown, also saw new investments being piped into tire production.

Perhaps the most significant was the purchase of Italian Pirelli by the state-owned ChemChina, which became effective in June, and the subsequent division of the firm’s industrial and PCR tire units as part of the integration.

Now with four tire makers, Aeolus, Pirelli, Double Happiness Tyre and Qingdao Yellowsea Rubber under its belt, ChemChina expects to develop industrial tires largely under the Aeolus management while Pirelli will widely take over the PCR production.

Elsewhere, Shandong Linglong Tyre announced in June that it was launching its IPO on the Shanghai Stock Exchange to raise €240 million for a high-performance PCR tire upgrade project with 10 million unit annual capacity.

In March, Triangle Group began production of high-performance car tires at its newest plant, in Weihai Nanhai New District in Shandong Province.

The plant, with a phase I capacity of 4 million units a year, is part of a €990-million investment package that will also include a proving ground for the testing of its high-performance car and commercial vehicle tires.

In November last year, Shenzhou Tire broke ground on a 5-million unit/year TBR facilities in Shizuishan, Ningxia. This is the second-phase of a €1.7-billion, 20.1 million unit/year radial tire project and is expected to come on stream in 2017.

Guizhou Tire confirmed to ERJ in August last year that it was building a new 3.25 million unit/year speciality tire plant in Xiuwen, Guizhou province, and expected to begin operation by 2017.

Investment and consolidation

As well as investments by Chinese tire manufacturers, the sector in China continued to attract interest from overseas, with foreign players making a large number of investments in the sector. These positive trends, though, were partly offset by consolidation and plant closures over the past year.

The following highlights ERJ’s reporting on these trends which date back to early 2015.

International players

International investments continued in China, throughout last year, with the biggest chunk coming from Germany’s Conti.

Japan’s Bridgestone announced in March that it had completed a €89-million investment to expand tire production by 2.3 million unit/year at its plant in Wuxi, Jiangsu.

US-based Cooper Tire & Rubber announced at the beginning of the year that it was buying a 65-percent stake in China’s Qingdao Ge Rui Da Rubber (GRT) for about €86 million.

The company plans to source its Roadmaster radial truck and bus tires from GRT’s plant in Qingdao.

Plant closures

Some of the most alarming developments within the Chinese tire industry were the consolidation process and closures of tire plants in the country.

The most recent development came from Beijing-based Capital Tire, an affiliate of state-owned conglomerate Capital Group, which declared bankruptcy in October. The company has 7.1 million tire/year capacity and dates back to the 1970s.

In February 2015, leading radial tire maker Shandong Deruibo Tire, with a 33-million units/year capacity, declared bankruptcy and was liquidated by the government.

Another big tire-maker Giti closed its TBR plant in Chongqing, China in November 2015. The move, which saw the laying off of 1,000 workers, was described by Giti as part of its “transformation strategy under current Chinese economic conditions.”

Also, Shandong-based speciality tire-maker Huitong Tyre was purchased by Shandong Provincial Bureau of Geology and Mineral Resources in August last year.

Huitong has a 2-million unit/year total capacity for TBR, OTR, agricultural and speciality tires.

In addition to that, a number of smaller tire makers, including Chuanghua Tire in Rizhao, Shandong and Fulltour in Linyi, Shandong were shut down last year.