By: Luigi Caffù. Published in Linkedin.
Many professionals of the Tyre industry work on the concept of Tyre Market and on the role that Imports have, but normally they do it on a product-specific base (e.g. only Car tyres) and reasoning on “volume” (number of tyres) in spite of using value. Additionally, they only focus on short or medium term, limiting the historical horizon to 3 / 5 years. Today I would like to change a little bit the rules of the game: I will focus on the European imports by Value for all the different kinds of new pneumatic tyres, during the period 2000-2016.
Eurostat has not published the full year 2016 data, but the period jan-nov is already available and I have estimated December in the most simple way (= average of previous 11 months) in order to estimate a FY 2016 which I consider to be a fair good enough number to be used for a non-detailed long term analysis.
The total import of tyres in EU28 results to be worth around 7 Billion euro. This is a relevant number, compared to the world tyre market estimation of some 160 Bln $ (according to Tire Business).
The tyre inflow in Europe has witnessed a tremendous growth in the last years, compared to the first years of the century, basically in all the product families:
There is no doubt that one of the most relevant themes about market dynamics in the last years has been China and its massive growth in terms of export to the rest of the World.
Europe is no exception, and you can clearly see it in the yearly evolution of the tyre imports, where the weight of Chinese tyres has been steadily and continuously growing until 2015.
A big question arises when looking at the right-hand part of the chart: will 2016 be the first year of a new declining trend for Chinese import, or will we be seeing a continuation in the growth of Chinese weight in imports?
My personal opinion is that in the future we will see China losing momentum, therefore declining in weight (or, at least, not growing any more).
My thesis doesn’t derive from observing in the chart a decline in 2016 compared to 2015 (2016 is still an estimation, and could be higher when actual figures are published). I simply observe that a new super-cycle of raw materials has just begun, and this will severely impact low-cost Chinese producers that are selling at very low (or no) margins. Additionally, some of the “big guys” in China have begun to heavily delocalize production as a consequence of recent andidumping actions started in the USA against tyres coming from China. In brief, I would expect that the big part of “container bulks” imports in EU from China (Tier 3/4 brands) will radically lose momentum; only the most innovative and marketing-oriented producers will be able to grow in the European market share; a part of Chinese import will be switched to other Countries, mainly Asian sources.
Last but not least, I would like to highlight a product-specific theme on Truck Tyres: in this case the weight of Chinese imports has reached an astonishing 50% level, as you can see in the chart.
This was due or, at least, helped by the Raw materials price decline after the peaks at the beginning of the global crisis of 2008 an, in a second moment, in 2011. Low-cost producers used the heavy decline of the product costs to aggressively lower sale prices, in order to gain massive market share.
In Europe, this meant a -30% vs 179€/tyre (the peak) compared to a -15% that can be observed in the average import price from all the other sources.
It seems really not likely that we will see in the future a continuation of the downwards price trend, thus leading to an impact in the market share of low-cost Chinese truck tyres in Europe.