China is one of the largest tire manufacturing and exporting countries in the world. January 2006 figures show that overseas shipments are still on the rise, already totaling close to 8 million pieces worth US$297 million.
In 2005, China shipped more than US$3 billion worth of tires, which is 55 percent more than what it exported the year before. Export volume rose at a relatively slow rate of 34 percent from 68.7 million pieces in 2004 to 91.8 million in 2005. Rising prices are the primary reason behind the higher growth rate of export value. Customs statistics show that the average unit value of tires increased close to 16 percent in 2005, compared with the 10 percent adjustment the previous year.
The following are some of the key trends we see in China's tires industry:
China-made tires are available in bias, semi steel radial and all-steel radial models. The Products & Prices section in this report discusses the key characteristics of each category, as well as the major factors that distinguish low end, mid range and high-end products.
The production of bias and radial tires starts off the same, but diverges at assembly stage. The processes are described in detail in this report's Manufacturing section, which also compares small, midsize and large suppliers in terms of production capability and the machinery they use.
Product development in China's tires industry often involves in-house and collaborative efforts with buyers and research institutes. The results of these partnerships are discussed in the R&D/Design section of this report.
The Industry Overview elaborates on the composition of China's tires industry, highlighting the key characteristics of the different types of suppliers.
The majority of the estimated 500 tire manufacturers in the country are private, locally owned companies. In addition, there are several foreign invested enterprises or joint ventures with the top tire brands in the world.
Global Sources surveyed a wide range of suppliers to produce this report, including some of the largest companies in China. This report has profiles of eight of the top 15 tire makers in China, all of which are ranked among the world's 75 largest tire companies based on sales. These suppliers include Triangle, Hangzhou Zhongce, Shandong Linglong and Aeolus, which generated more than US$1 billion worth of export revenue from tires last year. This report also profiles three of the top five tire manufacturers in Taiwan, including Cheng Shin, which is the island's largest maker. Apart from these high-profile suppliers, we also interviewed many midsize and emerging manufacturers, which form the core of the industry.
The selection of suppliers in this report is consistent with the composition of the industry, with more than three-quarters of the interviewed companies wholly China-owned. The rest are foreign invested or publicly listed. In addition, more than half of the suppliers in this report are based in Shandong province, which is the center of tire production in China.
Global Sources research teams toured the factories of 13 makers and spoke with senior executives, who discussed their 2005 performance and forecasts for 2006. This report has an in-depth profile of each of these makers, as well as detailed profile tables of an additional 26 suppliers.
Industry Overview
China exports only 30 percent of its entire production of tires. Nevertheless, overseas earnings continue to achieve high double-digit growth, with 92 million passenger car, bus and truck tires crossing the US$3 billion mark in 2005. These figures represent an increase of more than 30 percent in volume and almost 55 percent in value.
Overseas shipments in January have already reached 8 million tires worth US$297 million registering a 17 and 37 percent growth in terms of volume and value, respectively, over the same month in 2005.
Export value registered bigger growth due mainly to the fact that suppliers are shipping their products, especially bus and truck tires, at prices that are significantly higher than they were a year ago. Models for buses and trucks account for almost 65 percent of the country's exports of tires. They averaged US$64 per unit in January this year compared with US$47.50 in January 2005.
Exports are expected to continue increasing steadily this year as suppliers intensify efforts to penetrate overseas markets to reduce their dependence on domestic sales. This move was necessitated mainly by the slowdown of China's car manufacturing industry that started in 2004 and continues today, which left many makers, especially those that had expanded in anticipation of a continued boom in the sector, with large unutilized capacity.
In addition, suppliers are keen on avoiding severe price competition in the overcrowded domestic market, which is becoming even more intense as multinationals such as Michelin, Goodyear and Bridgestone strengthen their presence in both the OEM and retail segments of China.
China suppliers will continue to focus on the international aftermarket for replacement parts, which currently absorbs about 80 percent of exports.
One of the primary reasons for this strategy is that demand for tires in the aftermarket is about three times higher than in the OEM segment. Concentrating on the aftermarket for replacement parts also lessens the dependence of sales on the increase or drop in actual automobile production. Tires continue to sell in the aftermarket whether new vehicles are made or not.
Higher margins are also driving China tire suppliers to continue focusing on the aftermarket, especially in light of increasing raw material costs and competition. Tires can be sold at prices 10 percent higher in the replacement market than when they are sold on an OEM basis to carmakers.
Suppliers can also increase market recognition of their brands as tires for the aftermarket usually carry in-house brands, providing them with a stronger differentiation advantage against competitors.
Dichotomous trend
Tire makers in China are moving toward two different directions. On the one hand, multinationals, large China-owned suppliers and several mid size companies with the financial resources to invest in production system upgrades and more extensive R&D work are fast tracking the development of competitively priced, high-performance radial tires that can command higher margins. These suppliers are developing higher value models to boost exports to upscale markets such as North America and the EU, where there are stringent quality and safety standards regulating tires.
On the other hand, the rest of the supplier base continues to concentrate on the manufacture of bias tires despite the fact that the market for this product is shrinking with the increased use of radial tires in both light- and heavy-duty or off-road vehicles. Some suppliers have already expanded their selections to include large off-road bias tires for heavy trucks and industrial machinery, applications where there is currently a shortage of tires.
Supplier Profile
Aeolus Tyre Co. Ltd
Aeolus, one of China's largest tire makers, also ranks among the world's 75 biggest tire manufacturers. Established in 1965 and reorganized into a publicly listed company in 2003, the company has led tire development efforts in Henan province and received CNAB, QS-9000 and VDA 6.1 certifications.
Annual production capacity accommodates 2 million all-steel radial tires, 2 million bias tires and 300,000 off-road tires. Products follow DOT, ECE and CCC guidelines.
Thirty percent of the company's output is shipped overseas. All exports are shipped under in-house brands, but 33 percent of output is purchased by domestic automakers under OEM/ODM contracts and distributed through Aeolus' national network.
The ISO 9001-certified company is building a new factory in Jiaozou that will have the capacity to produce 4 million semi steel radial tires annually. In 2006, a radial off-road project for large engineering vehicles will be released. Aeolus also plans to enter the high-end sedan tire sector.
Products
Aeolus manufactures more than 400 models, including heavy-duty radial and bias types as well as models for light trucks, agricultural machinery and engineering equipment. All-steel radial tires represent the company's main product and after a 70 percent sales increase in 2005, received special R&D focus. The company also produces more than 20 off-road tire molds.
Heavy-duty radial tires sell from US$60 to more than US$200. Bias models range from US$5 for an agriculture tire to US$7,000 for an engineering tire.
The company's US$15-million R&D department employs 200 technicians and engineers to study material specifications, product structure and production technology, particularly for high-performance models.
All this column of information contained in China Sourcing Reports is the result of original, independent and impartial research conducted by Global Sources analysts.
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