World - Tyres For Motor Cars - Market Analysis, Forecast, Size, Trends and Insights
Car Tyre Market - Should Domestic Industry Benefit From China Tail Off?
Photo: © kadmy / Bigstockphoto
In 2014, a restrictive tax duty was introduced in the USA, with regard to the import of car tyres from the People's Republic of China (PRC). As a result, the share of Chinese-manufactured car tyres on the American market has fallen from 13% to 6%. This decline, has, in turn, led to a drop in car tyre output in China, recorded initially as of 2008: the drop in USA imports was not offset by increased exports to other countries. At the same time, American manufacturers could only partly satisfy the newly-nascent market niche. Car tyre manufacturers elsewhere in Asia have taken advantage of the reduced presence of Chinese companies in the USA; this accounts for the relatively insignificant growth in USA car tyre output, against the increase in Asian exports. The restrictive tax duty may have an adverse impact on the position of American car tyre producers operating not only in the PRC, but also enhance competition worldwide, as Chinese companies could diversify their supplies to new markets.
Based on the past year's results, Chinese car tyre exports to the USA market experienced more than a twofold contraction, to $846 million. According to IndexBox, the share of Chinese car tyres in terms of USA total consumption also declined: once standing at 13% in value terms in 2014, this figure fell to 6% in 2015. The impact of the anti-dumping tax duties, introduced by the USA the previous year to shield American manufacturers against competition from cheaper Chinese imports, is a key factor behind this change.
However, car tyre products from across Asia (particuarly South Korea, Thailand and Indonesia) and Mexico have replaced their Chinese counterparts. Manufacturers in these countries have succeeded in increasing exports to the USA faster than USA-based producers have been able to expand their presence on the domestic market. Lower labour costs than in the USA, combined with the favourable foreign exchange rate against the US dollar, have made it feasible for Asian manufacturers to achieve this.
In an effort to retain the large American market, Chinese car tyre manufacturers have moved with an initiative to counter the restrictive tax duty. China has argued that Chinese-produced car tyres were mainly used for repair and replacement purposes, as opposed to their American alternatives, which are mainly despatched to the car plants for the initial installation process.
However, the Chinese have failed to achieve a complete waiver of the tax duty. As history shows, this tax levy may only be a temporary measure. On several occasions, the U.S. adopted measures to protect the domestic market. In 2010, high tariffs were introduced on car tyre imports from the PRC, resulting in a 28% drop in Chinese car tyre exports to the USA. Several years later these tariffs were removed, and China regained their previous position on the American market. The adoption of more stringent technical standards, in conjunction with the EU, on car tyre imports, was yet another of these measures, which resulted in Chinese manufacturers being lumbered with higher costs.
For a long time now, China has been the world's largest manufacturer on the car tyre market: in value terms, China produces about one third of the global car tyre output, while the USA is in second place, with only 5% of global production. Relatively low labour costs and the fact that the world's leading tyre manufacturers have their own production bases in the PRC, account for China's leading position. Low prices for basic raw materials, namely natural rubber, and the availability of other materials, such as synthetic rubber, carbon black and zinc oxide also contribute to China's dominance.
As a result of increased output, China aggressively began to step up car tyre exports. Chinese-produced car tyres proved to be more competitive than their global counterparts, due to the fact that they were cheaper. From 2007-2014, Chinese car tyre exports increased almost twofold in value terms, to $4.9 billion. At this time, the USA was the main market for the Chinese product; by 2014 year-end in the USA, 23% of total car tyre imports originated from China.
Last year, however, with stringent trade barriers in place, China was forced to cut back on car tyre output for the first time since 2008. China failed to offset the partial loss of the American market by increasing exports to other destinations. One factor for this was the continuing downward trend in the global economy, which in turn, led to a slow in demand for car tyres. The tightening of technical standards for manufacturers intending to export car tyres to the USA and the EU, also proved to be a further negative factor. It is worth noting, that the position of Chinese companies could deteriorate further in the immediate term, due to the possible introduction of tax duties by a number of major consumer countries, the EU included, on car tyres from the PRC.
In terms of the USA car tyre industry, its position has seen a tangible improvement following the introduction of the restrictive tax duty: According to IndexBox, its share within the structure of car tyre consumption has increased by 2 percentage points overall (from 45% to 47%), while the share of imports still accounts for over 50%. Chinese imports, therefore, have effectively been replaced by imports from other countries.
In the USA, key factors currently affecting car tyre demand included the state of the economy and the conditions on the car market. The American car industry experienced a painful recession during the 2008 crisis, but the sector has recovered to pre-crisis levels of development in the past few years. Weak growth was recorded last year, due to the expanding demand for cars, and greater access to car loans, combined with low interest rates. The recovery of the American economy, increased employment and rising household incomes, set against low petrol prices will promote the development of car and vehicle use. This, in turn, will increase the intensity of car tyre use, which (along with product quality, and the road and weather conditions) will be an important factor in the sale of new tyres, implying that car tyres will need to be changed and replaced on a more frequent basis, thereby resulting in a surge in demand.
Overall, the introduction of restrictive import duties on car tyres from China has been equivocal. The nascent market niche was composed of not so much increased car tyre output by American manufacturers, as a surge in car tyre imports from across Asia. At the same time, this could damage the stability of American car tyre manufacturers operating in the PRC, and which account for two thirds of Chinese car tyre exports. In addition, losses incurred from the key market will encourage Chinese manufacturers to actively enter other markets, increasing competition for American producer-companies and their divisions world-wide.
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Source: IndexBox AI Platform
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