More than 30 companies increased prices in December, why is the industry still sluggish?

At the end of the year, the price increase in the tire industry has not stopped.

The Shanghai Securities News reporter learned from the industry that after a number of tire companies raised the price of products in December, Tire companies such as Linglong Tire and Shenzhou Tire have recently issued price increase notices saying that since January 1, the price of tire products has continued to rise, with an increase of between 2% and 5%.

Industry insiders believe that the current "price increase tide" in the tire industry is more based on the "passive price increase" of raw material cost prices, rather than a signal of the improvement of the industry's prosperity. The tire industry is facing multiple pressures such as increased production costs, poor market demand, and blocked exports, and it will take time for the industry to recover.

A number of tire companies are forecasting price increases next year

Recently, the tire industry has once again set off a wave of price increases. According to incomplete statistics, as of now, more than 30 tire companies have raised the price of tires in December. At the same time, a number of tire companies are forecasting product price increases next year.

Shandong Linglong Tire recently issued a notice saying that since January 1, 2022, all all steel tires and semi-steel tire products in the domestic retail market have increased their invoice prices by 2% to 5%. Linglong Tire said that due to the influence of various factors, the price cost and expense of some rubber raw materials continued to rise, causing certain pressure on the production and operation of enterprises, so they had to increase prices.

In the case of relatively weak market demand and fierce competition in the retail market, the continuous price increase of tire products has undoubtedly aggravated the operational risks of stores and dealers, and its profit margins have been further compressed.

To this end, some tire companies have issued a letter of guarantee, which is intended to boost the enthusiasm of downstream stockpiling and give the downstream market a "reassuring pill".

In the price guarantee letter issued by China Tire on December 6, it was proposed that for agents who paid for the delivery from November 1 to December 31, the company would partially compensate the price if the loss caused by the company's price reduction during this period.

The main reason for the price increase: the cost of raw materials is rising

Rising raw material prices and driving up tire production costs are the main reasons for tire prices.

Zhuo Chuang information data shows that the average price of tire raw material costs in 2021 increased by 26% year-on-year, and tire companies transferred the upward pressure on costs by increasing prices under the fierce competition. Taking November as an example, the cost of raw materials for tire production increased by 20% year-on-year in the same month, while the average price of all-steel tires increased by 6% year-on-year in the same period.

Tire raw materials mainly include rubber, carbon black and so on. Zhuo Chuang information data show that in 2021, the price of tire raw materials generally rose, of which rubber antioxidants rose by 76% year-on-year, carbon black increased by 52% year-on-year, and cis-butadiene rubber and styrene-butadiene rubber increased by more than 40% year-on-year.

Chen Huifang, a tire industry analyst at Zhuo Chuang Information, told the Shanghai Securities News reporter that because tires are downstream products, tire companies will take measures as much as possible to reduce the impact of raw materials to maintain the stability of tire product prices. However, when the cost pressure of tires is larger, the gross profit is low or even the loss, the sensitivity of tire prices to raw materials will be greatly improved.

The "rejuvenation" of the tire industry still takes time

Although there have been several rounds of price increases during the year, under the influence of factors such as increased pressure on raw material costs and insufficient market demand, the profitability of the tire industry has not increased but declined.

According to Wonder data, in the first three quarters of this year, the net profit attributable to the mother of 8 listed tire companies declined year-on-year.

Statistics from Tianfeng Securities show that since the third quarter, the operating rate of the tire industry has been at a low level, and the production and sales volume and profitability of enterprises have been limited. In the third quarter, the gross profit margin level of tire companies also declined, and the gross profit margin of companies such as Linglong and Sailun decreased by more than 10 percentage points year-on-year.

The terminal retail market has also entered a "dilemma" under the pressure of rising prices. The owner of a tire retail store in Pudong, Shanghai, told the Shanghai Securities News reporter that in the face of tire manufacturers, dealers and stores are in a weaker position. For many years, the tire market is a fully competitive market, in order to stabilize the market share, the tire retail end is reluctant to rush to a sharp price increase, and the pressure of upstream price increases mostly stays at the retail end.

Another tire industry person also said that this year's tire product price increase is based on the "passive price increase" of raw material prices, and most of the profits generated by the price increase remain in the upstream, and the tire production end and sales side benefit less.

Looking forward to the future, Western Securities believes that the tire industry was in a trough of performance before. At present, the price of raw materials is showing a downward trend, the contradiction between supply and demand of shipping is expected to be alleviated in the next six months, the downstream automobile consumption demand may be released with the arrival of the peak season, and the performance of tire companies is expected to continue to pick up.

The development of new energy vehicles is also expected to form a positive factor for the tire industry. Tianfeng Securities believes that the new energy automobile industry chain has landed in China, and the localization rate of auto parts is high. New energy vehicles put forward a full range of new requirements for tires, domestic tire companies continue to introduce special tires, and the domestic tire enterprise brand construction has achieved initial results, the head enterprises actively expand production, tire quality continues to improve, and has been supported by a number of car companies.