With Chinese input Prices on the Up Could there be a Retread Renaissance?

Take Qingdao, Shandong province-based Aufine Group Co Ltd. In August Tyres & Accessories received notification that the company was bringing in a second “unfortunate” price increase in three months, brought on by the “not small” (23 per cent) increase in Aufine’s natural rubber costs. The fact that the Chinese government clamped down on production in regions adjacent to Qingdao during the last quarter has also affected the distribution of these products. Furthermore, in addition to pressures mentioned above, the supply of Chinese tyres is also described as “inconsistent” since the pound’s value has fallen against the Euro. As a result Chinese manufacturers are increasingly ‘cherry-picking’ sales in the most lucrative international markets. According to the retreaders T&A spoke to, the knock-on effect from high fuel prices and the general impact of the credit crunch mean there is still competition from cheaper new tyres imported from the Far East.

However, the fact that Chinese tyres prices are now also escalating, driven by material and energy costs, means the impact the effect was previously having on the market is now declining. After price, the second perceived area of weakness in this part of the market is said to be product performance. First off, you have to point out that there is a wide variation in the quality of new tyre product manufactured in China. The best manufacturers over there are learning very quickly by hiring experienced research and development managers from the leading players. However, it is also true that there are some poorer quality products. Taking a general position, the consensus is that, while the good Chinese manufacturers appear to be reliable in performance, the actual mileage achieved is still generally lower compared to premium retreads. That’s why retreaders are increasingly marketing both the mileage and rolling resistance characteristics of their products. The idea is to out-gun the Chinese imports by developing products that do things they don’t.

One manufacturer that is conscious of improving the specific qualities its tyres offer is Devon-based Bandvulc. Bandvulc reports that it has revisited the UK tyre market in order to develop a tyre which competes against the cheaper imported new tyres, in terms of giving better reliability, better resistance against punctures and also has a curbing band and deeper tread – resulting in the development of the BIG range. Although these tyres cost approximately the same as a new imported tyre they apparently offer 25-30 per cent more tyre life whilst automatically being more environmentally friendly. Alongside this new range of tipper tyres Bandvulc Tyres has also developed the BT08, which is a new generation super single tyre with a 20 millimetre tread depth, providing better resistance to turning scrub. An additional factor that points to an optimistic medium-term prognosis for the retread market is the recent strategic behaviour of the leading premium new tyre manufacturers. Taking the UK market as an example, the recent acquisitions/mergers of retreaders by new tyre manufacturers – e.g. Bridgestone’s acquisition of Bulldog (see T&A’s March 2008 retreading special, page 24, for more on this) have seen them change focus from selling new tyres at competitive prices to selling new and retread tyres including fleet management.

The mergers also give them the opportunity to retread a wider range of casings outside their own brands. Legislation passed in the last two years is also said to be beginning to bear fruit. Market observers report that the stringent requirements of ECE Regulation 109 (which means that the performance, dimensions and markings of retreads have to be equal to those of a new tyre) is beginning to have the positive effect of instilling confidence in operators that were previously hesitant of changing their tyre policies to include retreads. For the same reason mould cure retreads are reportedly becoming increasingly popular, due to them having the appearance and performance of a new tyre, meaning other tyre manufacturers are increasing their investment in this area.

However, it is also worth pointing out that the given example (Bridgestone Bulldog) bucks this trend as this factory produces considerably more pre-cure than mould-cure retreads. While this means there is more competition for the UK’s leading independent retreaders (Vacu-Lug and Bandvulc to name just the two largest players), it is also said to indicate that well-known, premium new tyre manufacturers recognise that the market in retreads is growing. The leading players are certainly being more open about the size of the market now. In recent years market representatives often referred to the now ancient annual market figure of 1 million new truck and bus tyres versus roughly 1 million retreads as summing up the market. Now they are saying 1.4 million new truck tyres (including 200,000 plus Chinese imports) and a million retreads is a much more realistic estimate. Chinese retread market already over 10 million units The other side of the Chinese price pressure coin is the domestic retreading market in the People’s Republic. With the price of new tyres on the up and some factories having production limitations thrust upon them, one has to ask if this could benefit Chinese retreaders? True there are continuing question marks over the retreadability of Chinese produced tyres, and therefore casing availability, but the sheer volume of truck tyres produced in China means there must be a steady stream of worn truck and bus tyres that could be retreaded. In addition nearly all the leading players in the Chinese market claim their tyres are retreadable, a statement that is likely to be more readily accepted in the China than in Europe.

According to the most recent data Tyres & Accessories has seen, over 10 million retreads were manufactured in China during 2007, with this figure expected to reach 11 million by the end of 2008. At the same time China’s National Bureau of Statistics reported tyre production across the country grew 14.8 per cent over last year in July. The Bureau’s statistics, reported by Dow Jones, show that January to July 2008, tyre production rose 13.5 per cent year on year to 329.32 million units. Then there is general vehicle take up or motorisation, as it is known. According to the Energy Information Administration, the road vehicle population will grow from 170 million vehicles in 1996 to 454 million in 2020 in developing regions. In China car ownership is increasing almost as quickly as the country’s gross domestic product and by 2020 it is estimated that between 88.85 and 132.24 million privately owned cars be driving on the roads of China. The point with both of these figures is that virgin rubber supplies simply will not be able to keep up with demand of this level. Will China’s retreaders be ready to offer less virgin rubber intensive products when the time comes?

In 2006, the China Tyre Retreading and Utilization Association (CTRA) reported that the Chinese retread market consisted of 4 million mould cure and 5.6 million pre-cure retreads. 40 per cent of hot retreads were various sizes of agricultural, OTR and light truck tyres with the remaining 2.4 million units being made up of truck bias and truck and bus radial tyres. Of the 5.6 million pre-cured the overwhelming majority are truck retreads (4.6 million) the remaining quantity were said to be light truck and other retreads. In short, back then 60 per cent of the market was made up of pre-cure retreads, the first time pre-cure retread volume exceeded mould cure output. General market conditions have changed a lot since then; raw material prices and the global OTR tyre shortage are just two factors that are likely to have significantly impacted the market in this time. But the fact remains that continuously increasing new tyre production volume and improving product quality mean there are an increasing number of potentially retreadable casings for those ready to retread them.