The Global Tire Industry in November

Car industry concept: New tires for sale at a tire store

Tire Industry Research released its November issue of the Global Tire Industry report. The 36-page publication brings unique insights into:

Forecasting prices of raw materials

Triangle’s factory in the US – financial analysis

Intelligent Tire meeting, including:

  • Better tires mean more miles/unit
  • TPMS improve inflation, extend life
  • Predicting Tire-Road grip

And for good measure we have included our monthly update on the China Tire Industry.

Then there is a further 22 pages of news and analysis, covering the world’s tire news from across the value chain including investments, appointments, legislation, statistics, Raw materials, company results, company information and environmental developments.

See here:

Raw materials forecasts

In a new development, we are offering some views on the supply-demand situation and the likely price direction for some key elastomer materials over the coming months. We have chosen to look at SBR, NR, NBR, CR, EPDM and carbon black, bringing some of the non-tire elastomers into the picture as well as tire industry raw materials.

In particular we discuss strategies that tire and non-tire purchasing managers can adopt to minimise risks associated with price fluctuations such as those seen a year ago.

The outlook is generally for prices to ease over the coming months, with the exception of chloroprene rubber (CR) where the material is going through one of its regular periods of extreme tightness.

NBR is emerging from a period of tightness, and prices are easing as material finds its way from Asia into Europe. A lot of new EPDM capacity has come on stream recently, so supply is expected to exceed demand, leading to softening of prices.

In fact, we do not expect the pattern of last year to repeat itself, but do see some risks especially with highly specialised (non-tire) carbon blacks. The next level of EU REACH legislation will kick in from the end of May 2018. Up to now companies have been able to import up to 100t of material in any one year without a full REACH registration. From June, that limit drops to just 1 tonne/year.

We expect that some speciality grades currently made in Egypt, Russia and elsewhere will increase in price, or simply become unavailable.

The speciality grades were not included in the original REACH registration process filed by the main carbon black producers. Although those producers are obliged to sell the relevant information and documents to anyone who wants to buy them, the price might be too high for some of these small volume materials.

Triangle’s US plant

Although Triangle still has not issued any English-language statement about its proposed investment i the United States, the company has generated a great deal of information in the Chinese language for its shareholders, about both the PCR factory and the TBR factory.

We’ve been tracking those stock market announcements and summarising and translating them for our readers. The documents include budgets for machinery, for buildings and financial projections for the price development of Triangle-brand tires in the United States.

Our view is that Triangle’s price development projections are ambitious. Triangle appears to take the view that it is possible to increase the brand image of its tires over a five-year period. The company predicts average unit price (sell-in) of its PCR tires will rise to $99.5 by 2028, from $67 in 2021. That’s a 5.8% annualised uplift, when annualised inflation is projected to be around 2.5% over that period. Triangle says that it can deliver this inflation-busting increase by moving the Triangle brand from a tier-3 product to a tier-2 product. We question the suggestion that Triangle is a tier-3 brand today and we are even more sceptical that it can move to a tier-2 brand by 2028, as Triangle’s documents suggest.

Even if these figures can be achieved, then Triangle’s target of over 50% gross margin in all but the first year of operation looks ambitious.

While the plan outlined above has been prepared by Deloittes. It is possible that the consultants do not understand the US tire industry well enough to make realistic projections, or – perhaps more likely – that they were given a brief to produce a document that looks viable to Chinese authorities who do not understand the challenges associated with the United States tire market.

We have other concerns about Triangle’s plans, as published. First, the company does not yet have approval from the Chinese government to spend the suggested USD580mn in foreign currency. Secondly, the company has not addressed issues of unionisation and labour management in its documents.

Thirdly, we anticipate that at some point during the plan, some kind of crisis will arise and then the management in Weihai will have to choose between their own instincts, or to trust the US management. The company has selected very competent managers in the US. We hope that Chinese management will rely on the experience and knowledge of those managers and will choose not to over-rule them. However, this is not the management style we have come to associate with Triangle in China.

China’s tire industry in November

We’ve added in our monthly analysis of China’s tire industry. This month, the theme moves on to corporate restructuring. The biggest news was Triangle’s announcement that it plans to build a PCR tire factory in North Carolina. Beyond that, however, Michelin sold its stake in the Warrior PCR plant in Anhui to its joint venture partner, Double Coin, and its parent, the Huayi Group. We have the background to that.

Long story short: Michelin had failed to make the factory profitable or successful. Double Coin asked the government to force Michelin to sell its stake to them. The government agreed, based on the fact that the factory had not turned a profit; there was no export revenue and Michelin had not invested in the manufacturing technology at the plant.

Sailun has also been restructuring, with a USD200n private share placement. Sailun has also sold its UK-based wholesale company, Kings Road Tyres for GBP500,000, which is a huge profit on the purchase price of GBP1 Sailun paid for the debt-ridden, loss-making company in January 2014. Word has it that Sailun has been seeking a buyer for KRT since early this year.

We also have very significant updates on a number of projects going forward that remain exclusive for our subscribers.

RFID tags in tires

We attended the IQPC conference on Intelligent tires in Dresden a few weeks ago. Tire makers have been slow to adapt to the mobility revolution. In some ways, this is because there is not yet a clear picture of what the future will look like. Because the tire industry in the West has become very risk-averse, there is a reluctance in some companies to explore the different futures that are starting to emerge from the sea of uncertainty around the mobility revolution.

There are, however, a few areas where we can see some certainty and in these areas, the tire makers have been pushing forward.

One such is RFID tags. Europe’s tire industry has been discussing the standard for RFID tags for some years. Progress, however, has stalled, because some of the different tire makers have sought to promote their own proprietary systems in a bid to gain competitive advantage, and the impasse between the different proprietary systems has stalled progress.

Nevertheless, the business is moving forward, and within the next 12 months, the EU is expected to agree a standard for RFID tags in tires.

The tag can include a variety of data, such as tire size and manufacturing date; as well as retread history and other data.

We also rebut the idea that China is planning to introduce compulsory RFID tags during 2017. This idea surfaced around April 2017, and has been circulating ever since. During visits to China in April and again in May 2017, we took the trouble to ask around and found people who are involved in the legislative process. They specifically said there are no such plans. I confirmed that with people who should know when I was in China last week.

We think that someone – a Westerner – attended a conference – possibly the CRIA conference in Guangzhou in March – and mis-interpreted a presentation that proposed the mandatory use of RFID tags in tire labels.

This mis-interpretation came back to Europe and has been circulating ever since.

TPMS and the impact on inflation pressures

Another area of tire data gathering is tire pressure monitoring systems. These work. That is to say, in a given vehicle population, vehicles that have a functioning TPMS systems installed tend to run on higher average pressures, and experience significantly fewer incidents of extreme under-pressure than those without a TPMS. This is confirmed by an EU study that compared direct TPMS systems (dTPMS); indirect TPMS (iTPMS) and vehicles with no TPMS system fitted.

We also give a run-down of the current and expected TPMS legislation around the world.

US tire shipments

Late last week, the USTMA issued its latest forecast of tire shipments in the United States. Surprisingly, given the increase in miles driven, the USTMA predicts a 3.4% decline in light vehicle tire shipments.

Kevin Rohlwing of the TIA explained the US tire market is in transition, following new legislation introduced in the late 2000s, following the Ford Explorer roll-over incidents.

First, the US introduced Federal Motor Vehicle Safety Standard (FMVSS) 139 that has led to improved tires.

Second, FMVSS 138 required new cars from 2008 to have a TPMS fitted as standard.

The combination of improved tire constructions and improved inflation management has meant that tires simply last longer. At the end of 2016, automotive analysts R.L.Polk reported that the average age of vehicles on US roads increased yet again to 11.6 years. We are therefore somewhere near half way through the transition period for TPMS systems, while the transition for tires is now more or less complete.

Rohlwing noted that the tire prices have increased during 2017, and this extra expense has led some drivers to delay replacing their tires. Although this effect is probably temporary, it has been very widespread, so the number of tires sold has decreased.

Summary of the month’s news

We’ve also put in 22 pages of brief news stories, picking out the key developments in the industry, from investments and legislation to new technology and environmental innovations. We cover the entire supply chain, from selling prices to raw materials and we cover developments around the world. It’s an essential briefing for anyone struggling to keep up with global developments in the tire industry.

This 36-page, information-rich report, titled Global Tire Industry in November 2017 is available only from Tire Industry Research.

This article was first published on Linkedin on December 5, 2017. David Shaw is the CEO of Tire Industry Research.

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