Article published in the China Tire Report 2016, an annual supplement in the July/August issue of European Rubber Journal magazine
The decline in sales among Chinese tire makers has taken a heavy toll on the business performance of their locally-based machinery suppliers.
The scale of the downturn was succinctly described by Karol Vanko, vice president of China’s largest machinery maker Mesnac in an interview with ERJ earlier this year, when he said the tire business in China was experiencing “very deep decreases, because of [the loss of sales in] the US, and because of [declines in] Russian and European markets.”
Indeed, figures supplied by the Chinese Rubber Machinery Association (CRMA) put 2015 sales – estimated in US dollars* – for the 18 largest equipment makers at $1151.7 million (€1045.8 million), 31-percent lower than the prior-year amount.
The performance marked a sharp reversal from 2014, when the Chinese tire and rubber machinery sector outperformed the global sector: managing a year-on-year sales increase of over 11 percent.
That was before the imposition of tariffs on tire imports from China by the US and other importing countries and overcapacity in the domestic market really started to register in companies’ financial results.
The negative trend in 2015 included significant machinery-sales declines at last year’s top four Chinese manufacturers: Mesnac, -47 percent; Yiyang Rubber & Plastics, -67 percent; Dalian R&P Machines, -18 percent; and Saferun Machinery -14.4 percent.
For its group as a whole, Mesnac reported a 15-percent drop in annual revenue last year to €344 million. Net profit rose by 9 percent to €29 million, although about half was from paring its stakes in Shanghai-listed tire maker Sailun Jinyu by 1 percent to 2.6 percent.
And, in July this year, Mesnac estimated its half-year net profit at up to 20 million yuan (€2.7 million), down by at least 84 percent year on year from €16.3 million in H1 2015, according to a company filing.
The half-year net profit was forecasted between €11.4 million and €16.3 million in Mesnac’s Q1 report released in April.
“The company’s rubber machinery business has been under the impact of slowed investment in domestic tire sector, with orders and sales less than expected,” said its filing. “Meanwhile the delivery of some orders has been delayed.”
“The company also cut down the amount of financial assets available for sale originally planned for disposal, due to the capital market conditions,” the filing added.
In response, Mesnac is looking to increase business outside of China – it has previously set a target for the level of overseas sales to reach 30-40 percent by this year.
However, this strategy has clearly yet to yield results: overseas sales fell by 17 percent in 2015, accounting for ‘a stable 12 percent’ of the group’s total revenue.
“We have been actively optimising our client structure and have seen a greater proportion of mid- to high-end orders, although it would take six to eight months to show in the financials,” a company official told ERJ.
Mesnac is, therefore, now focusing more on developing new projects in countries including the US, Brazil and Mexico. Another target is Iran, now that sanctions have been lifted.
“We have customers all over the world and this number is increasing,” said Vanko. “What is different is that we have more important strategic customers, from the top 10, let’s say.
Also impacted by the domestic market decline is Dalian-based Dalian Rubber & Plastics Machinery (DRPM), which received a de-listing warning in April due to it recording net loss over two consecutive years.
For 2015, DRPM reported a net loss of around €33 million, compared with an approximate €26-million net loss in 2014. Revenue fell slightly by 4 percent to around €114 million.
Declining market demand, inconsistent quality of its conventional products and stunted sales of its new products have brought down its competitiveness, said DRPM’s annual report for 2015.
Likewise, Tianjin-based tire machinery manufacturer Tianjin Saixiang Technology Co. Ltd (TST), posted 2015 annual sales of about €50 million, down by 51 percent from the previous year. The company saw an approximate €13-million net loss last year compared to €7 million net profit in 2014.
TST attributed the slide to a languid market in both China and overseas. TST’s total assets also dropped by 3 percent to €238 million.
The negative trend continued into this year, TST forecasting net losses of between 5 million yuan (€0.7 million) and 10 million yuan for the first quarter of 2016 – compared to a net profit of 9.8 million yuan in the prior-year first quarter.
Speaking to ERJ earlier this year, Zhang Jiliang, vice general manager of TST linked the declines to overcapacity in China, which represents the world’s largest tire market. The tire industry in China, he added, faced some major challenges that required new strategies for the future.
The way forward, he suggested, could include setting up more tire plants abroad, following the lead set by Qingdao Sentury Tire Co Ltd and Shandong Linglong Tire Co Ltd, which have established new facilities in Thailand.
“If the strategy is to move, then we will follow these companies and support their long-term strategies,” Zhang commented.
TST is also looking to further develop its relationships with Western tire manufacturers: the Tianjin-based company is already involved in a project with Continental in the OTR tire sector.
“With this type of co-operation we can learn how Western tire makers are thinking,” said Zhang.
More significantly, perhaps, for the Chinese rubber machinery manufacturing sector is state-owned China National Chemical Corp.’s (ChemChina) €925-million acquisition of KraussMaffei – following on from its purchase of Italian tire maker Pirelli & C. SpA for about €7.1 billion.
ChemChina’s wholly owned subsidiary China National Chemical Equipment Co. Ltd. (CNCE) produces a wide range of industrial equipment, including rubber curing presses, mixers and tire-building machines.
CNCE’s stated strategy is to become a “globally renowned chemical machinery and rubber machinery provider in three to five years.”
To support this strategy, KraussMaffei is preparing to step up its activities in the tire machinery market.
Post-acquisition, ChemChina said it will integrate all of its existing rubber machinery and related production businesses with KraussMaffei.
“We are expanding our existing product portfolio, especially in the field of machines for the production of tires,” Stieler added.
KraussMaffei’s new owner ChemChina claims to be the leading rubber and chemical machinery manufacturer in China providing services to the top ten global tire manufacturers.
The transaction will also enable KraussMaffei to gain stronger access to markets in the Greater China region.
“We intend to accelerate our growth in Asia and particularly in China, which will also strengthen our company both in Germany and in the rest of Europe,” Stieler noted.
Welcoming the new addition to the company, ChemChina chairman Jianxin Ren said KraussMaffei would become “the principal business entity” in the company’s machinery segment.
“KraussMaffei will instil the robust German Industry 4.0 gene… into ChemChina’s advanced manufacturing segment,” said Ren.
According to Ren, KraussMaffei will help ChemChina offer integrated systems to its customers, particularly in the emerging markets. This, he said, would offer supply-side reform for ChemChina.
Among the group’s companies looking to increase sales abroad is Guilin Rubber Machinery, which recently signed a curing press order with an Indian customer, worth “hundreds of millions of yuans.”
“Since the beginning of the year, the new orders signed by the company have a cumulative worth of nearly RMB160 million (€22 million),” the Chinese group reported in April.
In the same statement, Guilin Rubber Machinery said it had adopted a strategy to target international markets, and promote “new and quality curing presses”.
The customer that cooperated with the company last year had “quite favourable comments on the quality curing presses”, said Guilin Rubber.
“This laid the foundation for its placing the big order worth of hundreds of millions of yuans this year,” it added.
*CRIA used a currency conversion rate of US$1 = REM6.4 (Yuan Renminbi)