Crunch time 'looms' for up to 500 Chinese tire makers

Hanover, Germany – Mounting pressure on Chinese tire makers will soon force a long-anticipated cull of smaller manufacturers in the sector, believes David Shaw, a tire market analyst specialising in China.

Estimating the number of manufacturers there at around 600, Shaw said: “It is a total mess and certainly in the next two years there should be a huge collapse of 70-80% of tire makers in China, but this depends on the relationships in that country. Many of the companies are continuing to operate, even though they are technically bankrupt. It is not clear how or when this situation will resolve itself.”

“There are plans in China to have four big tire companies develop the business. Whether that will that happen, no one knows,” added Shaw, who was chairing a manufacturing session at the Tire Technology Expo conference in Hanover on 15 Feb.

According to Shaw, the challenges that smaller Chinese tire companies face are manifold, not least the impact of the current spike in raw materials on margins as well as poor market-positioning. They also face increasingly tough competition from Western tire makers.

Many Chinese tire companies, the analyst noted, have been "running at very low margins. Prices of Chinese tires have been plummeting across the world.”

Shaw added that, in China, there is “massive overcapacity” among Chinese manufacturers for lower-quality 13-inch, 14-inch and 15-inch tires, but under-capacity for 17-inch, 18-inch tires for SUVs and other high-end vehicles.

Another, though less easy-to-gauge pressure, relates to new environmental legislation in China. Serious efforts, he said, are now being made by authorities there to address the environmental impact of tire production in the country.

More on this report will appear in ERJ’s March/April issue